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GRIGG  & ELLIOT, 

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THE  FOEEOWIJVC;  WORKl§i. 


THE  PRINCIPLES  OF  FREE  TRADE, 
ILLUSTRATED, 

IN  A SERIES  OF  SHORT  AND  FAMILIAR  ESSAYS, 

By  CONDY  RAGUET,  Esa. 

This  volume,  of  which  the  first  edition  has  been  exhausted,  com- 
prises 432  pages  octavo,  of  essays,  selected  from  the  Banner  of  the 
Constitution,  which  was  published  during  the  years  1830,  1831,  and 
1832,  and  which  is  now  out  of  print,  embracing  examinations  of  all 
the  different  positions  taken  by  the  advocates  of  a high  tariff,  during 
the  contest  which  was  terminated  by  the  compromise  act,  and  which 
are  now  likely  to  be  revived  in  adjusting  the  tariff  for  the  year  1842 
Price,  in  boards,  $1  50. 


THE  FINANCIAL  REGISTER. 

This  work,  in  two  vols.  octavo,  each  of  416  pages  of  closely 
printed  matter  in  double  columns,  was  published  as  a periodical 
under  the  editorship  of  Condy  Raguet,  Esq.  between  July  1837 
and  January  1839,  and  was  designed  as  a documentary  history 
of  the  commercial  crisis  of  that  period. 

The  following  notice  of  its  contents  appeared  in  one  of  the 
Philadelphia  papers  in  February,  1839. 

•History  of  the  late  Money  Crisis. — The  Financial  Register,  issued 
in  numbers  during  the  last  eighteen  months,  is  now  complete  in  two 
^•octavo  volumes,  closely  printed  in  double  columns,  at  the  price  of  five 
dollars.  As  a complete  documentary  history  of  the  late  money  crisis 
Cr  in  the  United  States  and  England,  it  is  of  high  value,  and  as  a book 
of  reference  embraces  a large  body  of  English  publications  connected 
with  banking  and  currency  which  are  not  easily  procurable  in  this 
country.  A perusal  of  the  contents  will  show  the  great  and  singular 
value  of  the  work  to  bankers,  statisticians,  and  inquirers  in  financial 
science  generally.  We  therefore  give  the  following  particulars,  as  the 
best  mode  of  noticing  a publication,  the  diversified  worth  of  which 
^ would  not  readily  be  imagined  without  such  an  index. 

The  celebrated  Bullion  Report  of  1810. 


326 


The  Trade  of  Banking  in  England,  embracing  the  substance  of  the 
evidence  taken  before  the  Secret  Committee  of  the  House  of  Com- 
mons  in  1832,  on  the  question  of  renewing  the  Charter  of  the  Bank 
of  England,  digested  and  discussed  under  appropriate  heads,  together 
with  a summary  of  the  Law  applicable  to  the  Bank  of  England,  to 
private  banks  of  issue  and  joint  stock  banking  companies,  by  Michael 
J.  Quinn,  Esq.,  of  Lincoln’s  Inn,  Barrister  at  Law.  The  cost  of  the 
London  edition  of  this  work  if  imported,  would  be  five  dollars. 

English  pamphlets  on  the  late  money  crisis,  by  J.  Horsley  Palmer, 
Samuel  Jones  Lloyd,  Col.  Torrens,  Samuel  Ricardo,  W.  Bennison,  and 
David  Salomons. 

Numerous  statements  of  the  affairs  of  the  Bank  of  England  down 
to  a late  period,  of  private  banks  and  of  jgint  stock  banks. 

Statements  of  the  affairs  of  the  three  American  houses  as  published 
at  the  time  of  their  suspension  in  England  in  1837. 

Annual  Report  to  the  stockholders  of  the  Bank  of  France  of  Janu- 
ary, 1837,  with  a history  of  the  Bank,  and  the  prominent  features  of 
its  charter. 

Recent  Act  of  the  British  Parliament  modifying  the  usury  laws. 

Mr.  Biddle’s  six  Letters  to  the  Hon.  John  Q.  Adams;  also  his  Let- 
ters to  the  New  York  Board  of  Trade,  and  the  New  Orleans  banks. 

Statements  of  the  affairs  of  the  late  Bank  of  the  United  States  du- 
ring the  twenty  years  of  its  existence,  and  of  the  Pennsylvania  Bank 
of  the  United  States  during  the  years  1836  and  1837. 

Summary  statement  from  official  documents,  of  the  condition  of  all 
the  Banks  in  the  United  States,  at  various  periods  from  1811  to  1838. 

Regular  monthly  statements  of  the  New  York  Banks  during  the 
suspension. 

Partial  statements  at  different  periods  of  some  of  the  banks  of  all 
the  states. 

The  Journal  and  proceedings  of  the  different  Bank  Conventions 
held  at  New  York  and  Philadelphia  in  reference  to  the  resumption  of 
specie  payments. 

Cotton,  numerous  tables  of  exports,  for  particular  periods,  consump- 
tion of,  in  Great  Britain  from  1810  to  1837,  total  annual  growth  in  the 
United  States,  from  1824  to  1838. 

The  Financial  measures  of  the  General  Government,  commencing 
with  the  passage  of  the  law  of  23d  June,  1837,  for  the  distribution  of 
the  surplus  revenue — the  specie  circular  of  11th  July  of  same  year — 
the  supplemental  circular  of  11th  July.  The  proclamation  of  the  pre- 
sident convoking  congress  in  extra  session — his  message  to  the  same 
— all  the  public  laws  passed  at  that  session  for  the  issue  of  treasury 
notes — for  the  postponement  of  the  fourth  instalment  of  the  revenue — 
for  the  postponement  of  the  duty  bonds  and  other  purposes — the  two 
sub-treasury  bills  as  they  passed  the  senate  at  the  diferent  sessions, 
and  were  rejected  by  the  house,  with  the  yeas  and  nays  of  each  house 
thereupon;  history  of  this  measure  when  first  introduced  in  congress 
by  General  Gordon  in  1834. 

The  Essays,  eighteen  in  number,  which  appeared  in  the  National 
Gazette  early  in  1837,  under  the  signature  of  “An  Examiner.” 

Reports  made  to  the  Legislature  of  Massachusetts  on  the  affairs  of 


, ^"327' 

The  Lafayette,  The  Commonwealth,  Franklin,  Kilby,  Roxbury,  and 
Norfolk  Banks. 

Notices  of  numerous  legal  decisions  in  various  parts  of  the  United 
States,  to  which  banks  and  other  corporations  were  parties,  involving 
new  and  most  important  doctrines. 

Judge  King’s  decision  in  the  case  of  Kuhn  vs.  The  Bank  of  the 
United  States. 

Periods  at  which  the  banks  in  different  states  resumed  specie  pay- 
ments. 

Sales  of  stock’  weekly,  at  Philadelphia  and  New  York,  from  July, 
1837,  to  December,  1838. 

Rates  of  Exchange  at  New  York,  foreign  and  domestic,  weekly, 
during  the  same  period.  ' 

Fluctuations  in  the  New  York  Stock  market  monthly  during  the 
year  1837,  of  the  principal  stocks,  foreign  and  domestic,  usually  sold 
there. 

A copy  of  the  New  York  general  banking  law,  and  of  the  articles 
of  association  under  it,  of  the  American  Exchange  Bank,  The  Me- 
chanics’ Banking  Association,  and  The  North  American  Trust  and 
Banking  Company. 

Table  of  Imports  and  Exports  from  1789  to  1838  inclusive. 

A list  of  the  names  of  the  members  of  the  last  congress,  and  a 
statement  of  the  periods  at  which  elections  are  held  in  all  the  states. 

Chancellor  Kent’s  opinion  on  the  law  of  corporations. 

Notices  of  many  of  the  loans  effected  by  different  states. 

Dr.  Robert  Hare’s  pamphlet  on  the  currency. 

Dr.  M’Vickar’s  pamphlet  on  banking,  first  published  in  1827. 

General  Jackson’s  two  Letters  to  the  editor  of  the  Globe  of  9th  and 
23d  July,  1837,  on  the  financial  policy  of  the  country. 

The  Secretary  of  the  Treasury’s  Reports  to  congress,  at  the  open- 
ing of  the  present  and  the  preceding  sessions  of  congress,  with  such 
parts  of  the  president’s  message  as  relates  to  the  finances. 

Annual  Report  of  the  director  of  the  Mint  of  13th  January,  1838. 

History  of  the  money  crisis  of  1818. 

Yeas  and  nays  in  the  two  houses  of  congress  upon  the  chartering 
of  a National  Bank  during  the  extra  session. 

Dividends  declared  by  the  banks  of  New  York  and  Philadelphia,  at 
different  periods  within  the  last  eighteen  months,  with  occasional 
notices  of  the  money  market. 

Quotation  of  the  prices  of  American  Stocks  in  the  London  market, 
and  of  cotton  in  the  Liverpool  market,  at  many  different  periods. 

Mr.  Wright’s  Report  to  the  Senate  of  the  United  States  on  the  col- 
lection of  the  public  revenue. 

Mr.  Rives’  substitute  for  the  Sub-Treasury  bill  offered  at  the  last 
session  of  congress. 

Mr.  Wright’s  Report  to  the  Senate  on  Mr.  Webster’s  resolution 
respecting  the  employment  of  state  banks. 

Copy  of  the  Treasury  instructions  of  20th  September,  1835,  to  the 
deposit  banks,  recommending  an  extension  of  discounts  on  the  public 
money. 

Report  of  the  Bank  Commissioners  of  Mississippi  upon  the  condi- 


328 


tion  of  the  Hrandon  Bank,  and  an  account  of  various  proceedings  in 
that  state  in  reference  to  the  state  of  the  currency. 

Proceedings  of  the  New  Orleans  banks  at  various  periods,  respect- 
ing a resumption  of  specie  payments. 

A copy  of  this  work  should  be  in  every  library  and  bank  for 
future  reference.  The  number  of  copies  for  sale  is  only  300. 
The  price  is  $5,  half  bound. 


QUINN’S  TRADE  OF  BANKING. 

<The  Trade  of  Banking  in  England,  embracing  the  substance  of  the 
evidence  taken  before  the  secret  committee  of  the  house  of  commons, 
in  1832,  on  the  question  of  renewing  the  charter  of  the  Bank  of  Eng- 
land, digested  and  arranged  under  appropriate  heads.  Together  with 
a summary  of  the  law  applicable  to  the  Bank  of  England,  to  private 
banks  of  issue,  and  joint  stock  banking  companies.  To  which  is 
added  an  Appendix.  By  Michael  J.  Quinn,  Esq.,  of  Lincoln’s  Inn, 
Barrister  at  Law.  London,  1833. 

This  work,  the  English  edition  of  which  fills  a volume  of  up- 
wards of  400  pages  small  octavo,  and  costs  in  London  fifteen 
shillings  sterling,  is  republished  entire  in  the  second  volume  of 
the  Financial  Register,  thus  presenting  to  the  American  reader 
at  a comparatively  small  cost,  a work  of  great  value,  as  contain- 
ing a condensation  of  what  in  the  minutes  of  evidence  to  which 
it  refers,  occupies  a very  large  and  expensive  quarto  volume. 


ALSO, 

THE  FREE  TRADE  ADVOCATE, 

AND  JOURNAL  OF  POLITICAL  ECONOMY. 

In  Two  Volumes^  Octavo, 

Published  as  a periodical  in  1829,  and  edited  by 
CONDY  RAGUET,  Esa. 


ALSO, 

THE  SECOND  VOLUME  OF  THE  EXAMINER, 

(the  first  being  out  of  print:) 

Published  as  a periodical  between  August  1834  and  August  1835,  and 
Edited  by  CONDY  RAGUET,  Esq. 


A treatisp: 


CURRENCY  AND  BANKING. 


CONDY  RAGUET,  LL.D., 

member  of  the  AMERICAN  PHILOSOPHICAL  SOCIETY;  PRESIDENT  OF  THE  CHAMBER 
OF  COMMERCE  OF  PHILADELPHIA;  LATE  CHARGE  D’AFFAIRES  OF  THrcmTEr 
STATES  AT  THE  CODRT  OF  BRAZIL,  AND  AUTHOR  OF  “ THE  PRINCIPLES 
OF  FREE  TRADE  ILLUSTRATED.” 


interest  of  every  country  that  the  standard  of  its  money,  once  set- 
tled,  should  be  inviolably  and  immutably  kept  to  perpetuity.  For  vvhenev^er 
altered,  upon  whatever  pretence  soever,  the  public  will  lose  by  it 
Men  in  their  bargains  contract,  not  for  denominations  or  sounds,  but  for  the 
intrinsic  value.— hocKK  on  Money. 


Second  mxHHon. 


PHILADELPHIA: 

GRIGG  & ELLIOT,  BOOKSELLERS,  No.  9 NORTH  FOURTH  STREET. 


1840. 


Entered,  according  to  act  of  congress,  in  the  year  1839, 

By  CONDY  RAGUET, 

In  the  office  of  the  clerk  of  the  District  Court  of  the  Eastern  District 
of  Pennsylvania. 


T,  K.  & P.  G.  COLLINS,  PRINTERS, 

No.  1 Lodge  Alley 


1 

TO 

CLEMENT  C.  BIDDLE,  Esq. 

AS  A MARK  OF  RESPECT, 

DUE  TO  AN  ENLIGHTENED  POLITICAL  ECONOMIST,  AND 
AS  A TESTIMONIAL  OF  A FRIENDSHIP, 

COMMENCED  IN  CHILDHOOD,  CONTINUED  WITHOUT  INTERRUPTION 
FOR  MORE  THAN  FORTY  YEARS,  AND  STRENGTHENED  BY  A HAR- 
MONY OF  OPINION  ON  MOST  OF  THE  POLITICAL  SUBJECTS  THAT 
HAVE  OF  LATE  DIVIDED  THE  PEOPLE  OF  THE 


UNITED  STATES, 


AND  ESPECIALLY  ON  THOSE  OF 

CURRENCY  AND  BANKING, 

THIS  WORK  IS,  WITH  SENTIMENTS  OF  THE 
MOST  AFFECTIONATE  REGARD, 

DEDICATED  BY 


THE  AUTHOR 


TABLE  OF  CONTENTS. 


BOOK  THE  FIRST. 


OF  THE  LAWS  WHICH  REGULATE  A CURRENCY 
COMPOSED  ENTIRELY  OF  THE  PRECIOUS  ME- 
TALS. 


Chapter  I. — Of  the  intrinsic  value  of  the  precious  metals, 
and  of  their  adaptation  to  the  purposes  of  a circulating 
medium,  - 

Chapter  II. — Of  the  distribution  of  the  precious  metals 
throughout  the  commercial  world,  . - - - 5 

Chapter  III. — On  the  relative  value  of  gold  and  silver,  - 8 

Chapter  IV. — On  the  balance  of  trade,  or  the  causes  which 
occasion  the  transmission  of  the  precious  metals  from  one 


country  to  another,  - - - - - -12 

Chapter  V. — On  the  principles  of  exchange,  - - - 25 

Chapter  VI. — On  the  steadiness  of  trade  in  countries  em- 
ploying a metallic  currency,  - - - - - - 36 

Chapter  VII. — Of  the  different  kinds  of  depreciation  to 
which  a metallic  currency  is  liable,  - - - - 42 

Chapter  VIII. — On  the  “credit  system,”  or  the  influence 
of  credit  in  promoting  national  wealth,  - - - - 48 

Chapter  IX. — On  the  laws  which  regulate  the  hire  of 
capital,  and  on  the  impolicy  of  usury  laws,  - - - 53 

Chapter  X. — Examination  of  the  common  opinion  re- 
specting the  sinking  of  capital, 58 


VI 


TABLE  OF  CONTENTS. 


BOOK  THE  SECOND. 

OF  THE  LAWS  WHICH  REGULATE  A MIXED  CUR- 
RENCY  COMPOSED  OF  THE  PRECIOUS  METALS, 
AND  OF  PAPER  CONVERTIBLE  INTO  COIN  ON 
DEMAND. 

Chapter  I. — Of  banks  of  deposite,  of  banks  of  discount, 
and  of  banks  of  circulation,  ------  67 

Chapter  II. — Of  the  operation  of  banks  of  circulation,  - 73 
Chapter  III. — Of  the  principles  by  which  the  profits  of 
banks  of  circulation  are  determined,  - - - - 80 

Chapter  IV. — Of  the  safest  and  most  profitable  mode  of 
investing*  the  capitals  of  banks  of  circulation,  - - 84 

Chapter  V. — Of  the  legitimate  operations  of  banks  of 
circulation,  ---------90 

Chapter  VI. — Examination  of  the  common  opinion  that 

banks  create  capital,  - - 94 

Chapter  VII. — On  the  strict  convertibility  of  bank  notes 

and  credits, 100 

Chapter  VIII.— -Of  the  various  modes  resorted  to  by  some 
banks  to  augment  their  dividends,  - - - - 104 

Chapter  IX. — Of  the  creation  of  banks  without  capitals, 
or  of  fraudulent  banks,  - - ■»  - - -110 

Chapter  X. — Of  the  effects  of  banks  dealing  in  exchange,  114 
Chapter  XL — Examination  of  the  common  opinion  that 
the  establishment  of  banks  in  the  western  states  upon 
eastern  capital,  is  beneficial  to  those  states,  - - - 124 

Chapter  XII.— On  the  circulation  of  small  bank  notes,  - 127 


TABLE  OF  CONTENTS. 


Vll 


BOOK  THE  THIRD. 

OF  THE  LAWS  WHICH  REGULATE  A CURRENCY 
COMPOSED  ENTIRELY  OF  INCONVERTIBLE 
BANK  PAPER. 

Chapter  I. — Of  the  career  usually  run  by  banks  of  circu- 
lation previous  to  a general  stoppage  of  specie  payments,  134 
Chapter  II. — Of  the  fluctuations  in  the  market  price  of 
specie  and  of  bills  of  exchange  under  an  inconvertible 
paper  currency,  - - - - - - - -140 

Chapter  III. — Of  the  true  character  and  effects  of  a gene- 
ral Suspension  of  payments  by  the  banks,  and  their  obli- 
gations under  it, 148 

Chapter  IV. — Of  the  criminality  of  banks  in  augmenting 
their  issues  after  a suspension  of  payments,  - - - 154 

Chapter  V.— Of  the  cost  to  a community,  pecuniary  and 
moral,  of  banks  of  circulation,  compared  with  the  bene- 
fits derived  from  them,  - - - - - - -158 

Chapter  VI. — Of  the  different  kinds  of  depreciation  to 
which  an  inconvertible  paper  currency  is  liable,  - - 168 


BOOK  THE  FOURTH. 

Chapter  I. — Examination  of  the  question,  of  what  does  a 

currency  consist  I 173 

Chapter  II. — Examination  of  the  question,  of  what  does  a 
currency  consist?  continued,  - - - , - 177 


TABLE  OF  CONTENTS. 


viii 

Chapter  III. — On  the  importance  of  having  uniform  peri- 
odical statements  of  the  condition  of  the  currency,  - 188 
Chapter  IV. — On  the  impolicy  of  adhering  to  our  present 
mint  proportions  between  gold  and  silver,  - - - 194 

Chapter  V. — On  the  superiority  of  the  New  York  general 
banking  law,  over  the  present  banking  system,  - - 200 


APPENDIX. 

A.  — On  the  relative  value  of  gold  and  silver,  - - - 207 

B.  — History  of  the  gold  coinage  of  the  United  States,  - 218 

C.  — Condensed  statement  of  the  condition  of  all  the  banks 

in  the  United  States,  at  different  periods,  - - 242 

D.  — The  New  York  general  banking  law,  - - - 243 

E.  — Letter  from  the  author  to  J.  W.  Cowell,  Esq.  - - 254 

F.  — Table  of  imports  and  exports,  from  1789  to  1839,  - 258 

G.  — Essay  on  unlimited  liability,  by  James  Cox,  Esq.,  - 260 

H.  — Report  to  the  senate  of  Pennsylvania  on  the  money 

crisis  of  1818,  - 289 

I.  — Prices  of  state  stocks  in  London  at  two  different  pe- 

riods,   306 

J.  — Extract  from  the  annual  report  of  the  comptroller  of 

New  York,  of  January,  1840,  upon  the  general 
banking  law,  with  abstracts  from  two  recents  laws,  308 


PREFACE. 


The  suspension  of  specie  payments  by  all  the  banks 
in  the  United  States,  south  of  New  England,  in  the 
year  1814,  and  of  all,  with  a very  few  trifling  excep- 
tions, in  the  year  1837,  has  strongly  impressed  the 
public  mind  with  the  belief  that  there  is  something 
defective  in. the  present  banking  system  of  this  coun- 
try; and  it  is  not,  perhaps,  venturing  too  much  to 
assert,  that  there  are  now  elements  at  work,  which 
will  ultimately  overthrow  the  whole  fabric,  unless 
those  who  have  the  power  to  remedy  the  evil,  shall 
introduce  the  reforms  which  can  alone  render  a repe- 
tition of  such  a calamity  impossible. 

It  must  be  evident  to  every  observant  mind,  that 
a dislike  to  hear  the  truth,  when  opposed  to  one’s 
interests  or  prejudices,  is  the  principal  cause  of  a 
large  portion  of  the  mischievous  errors  which  so 
generally  prevail.  Men  of  education  and  capacity, 
who  are  best  qualified  to  investigate  and  understand 
the  important  principles  which  belong  to  the  science 
of  public  economy,  are  too  apt  to  view  them  as  of 
no  account,  or  to  despise  them  when  they  come  in 
conflict  with  their  purses,  or  with  their  political  pro- 
motion; and  hence  that  knowledge,  which  is  the  most 


X 


PREFACE. 


entitled  to  regard,  because  most  intimately  connected 
with  the  prosperity  of  a country,  is  of  all  others  the 
most  neglected.  I assert  it,  and,  in  so  doing,  I think 
I do  not  overestimate  its  value,  that  political  economy 
is  the  most  important  of  sciences;  and  if  its  practical 
branches  were  introduced  as  a study  into  all  our 
colleges  and  principal  schools,  it  would  do  more 
towards  exempting  the  country  from  erroneous  and 
destructive  legislation,  than  any  other  study  to  which 
the  attention  of  our  youth  could  be  directed. 

Of  these  practical  branches,  the  science  of  banking 
is  one,  but  it  is  one,  to  the  attainment  of  a knowledge 
of  which  there  is  no  royal  road/’  any  more  than 
there  is  to  any  other  species  of  learning.  He  who 
wishes  to  understand  it,  must  study  and  reflect^  and 
this  not  with  the  feelings  of  a partisan,  but  in  the  true 
spirit  of  philosophy,  unbiassed  by  self-interest,  or  by 
any  other  consideration  than  a pure  love  of  the  truth. 
The  rapid  strides  which  the  banking  system  has  been 
making  of  late  in  France  and  other  countries  of 
Europe,  accompanied,  as  it  has  been,  by  indications 
of  unsoundness,  in  Belgium  and  elsewhere,  gives 
just  ground  for  apprehension,  that  the  same  spirit 
which  has  characterised  the  management  of  most  of 
our  institutions,  as  well  as  those  of  Great  Britain, 
producing  alternate  expansions  and  contractions  of 
the  currency,  to  the  great  injury  of  the  public,  will 
also  there  extensively  prevail.  In  such  event,  the 
check  to  over-issues  in  this  country  and  England, 
which  now  exists  from  the  reaction  of  the  metallic 
currencies  of  continental  Europe,  would  be  greatly 
diminished,  and  in  consequence  of  it,  inflations  and 


PREFACE. 


XI 


convulsions  hitherto  unknown  in  the  commercial 
world,  because  extended  over  a wider  field,  would 
most  certainly  overtake  us  all.  That  the  interests  of 
a country  are  best  to  be  promoted  by  a stable  cur- 
rency, precisely  as  they  are  by  a fixed  standard  of 
weights  and  measures,  will  hardly  be  disputed;  and 
if  it  can  be  shown,  that  a defective,  or  mismanaged 
banking  system,  produces  exactly  the  same  results 
upon  the  pursuits  of  industry,  and  the  property  of 
individuals,  as  would  the  decrees  of  a despot,  who 
should  alter,  at  his  pleasure,  without  any  previous 
notice,  as  often  as  he  thought  it  expedient,  the  weight 
of  the  pound,  or  the  length  of  the  yardstick,  it  is  to 
be  hoped  that  there  is  not  a patriot  in  the  land,  who 
would  hesitate  to  assist  in  the  entire  eradication  of 
such  a monstrous  evil.  That  such  is  the  effect  of  our 
present  system,  as  it  has  been  of  late  conducted,  must 
be  obvious  to  all  who  have  closely  examined  its 
operations,  and  hence  the  necessity,  before  it  is  too 
late,  of  an  application  of  the  appropriate  remedy. 

The  author  of  this  treatise  in  offering  it  to  the 
public,  has  no  private  ends  to  promote.  He  has  been 
for  twenty  years  a student  of  the  science  which  he 
proposes  to  discuss,  and  has  during  that  time  in  some 
reports  to  the  senate  of  Pennsylvania,  and  in  many 
detached  publications,  presented  his  views  in  relation 
to  currency  and  banking;  and  if  in  the  present  volume 
there  should  appear  here  and  there  an  expression 
familiar  to  the  reader  from  former  acquaintance,  he 
may  be  assured  that  not  a phrase  has  been  employed 
as  original,  which  is  not  his  own  property.  He 
knows  that  in  his  opinions  respecting  the  influence 


PREFACE. 


xii 

and  operation  of  banks  of  circulation,  upon  the  public 
prosperity,  he  diflers  from  some  of  his  personal  friends, 
and  from  many  others  engaged  in  the  management 
of  such  institutions,  for  whose  intelligence  and  purity 
of  character  he  entertains  the  highest  respect.  But 
the  truths  of  science  cannot  be  forced  to  accommodate 
themselves  to  man’s  imperfection  or  interests.  If 
what  he  advances  be  not  such  truths,  they  can  be 
easily  refuted,  and  he  invites  the  severest  criticism  to 
be  applied  to  his  doctrines,  in  order  that  their  solidity 
may  be  tested,  and  if  found  to  be  false  or  unstable, 
that  their  true  character  may  be  exposed.  If,  on  the 
other  hand,  the  principles  which  he  asserts,  be  in 
reality,  as  he  honestly  believes  them  to  be,  incontro- 
vertible truths,  he  will  not  do  any  of  his  readers  the 
injustice  of  supposing,  that  they  would  reject  them, 
because  they  are  not  profitable. 

With  these  preliminary  remarks,  the  author  will 
briefly  state,  that  the  plan  he  has  adopted,  is  one  which 
he  thinks  the  best  calculated  to  simplify  the  subject 
to  those  who  have  not  heretofore  made  it  a study. 
He  has  divided  the  volume  into  four  books.  The 
first  treats  of  the  laws  which  regulate  a currency 
composed  entirely  of  the  precious  metals;  the  second, 
of  those  which  regulate  a currency  composed  of  coin 
and  convertible  paper  united;  the  third,  of  those 
which  regulate  an  inconvertible  paper  currency; 
whilst  the  fourth  treats  of  some  miscellaneous  matters, 
which  could  not  have  been  well  comprised  under 
either  of  the  former  heads. 

In  the  language  and  style  of  the  work,  the  author 
has  sought  rather  to  render  his  positions  intelligible 


XIV 


PREFACE. 


NOTE  TO  SECOND  EDITION. 

The  stoppage  of  specie  payments  referred  to 
above,  in  1814,  commenced  in  Baltimore  about  the 
27th  of  August,  soon  after  the  battle  of  Bladensburgh 
and  the  capture  of  Washington,  which  events  took 
place  on  the  24th  of  that  month,  and  was  followed 
by  Philadelphia  on  the  30th,  and  by  New  York  on 
the  1st  of  September.  A general  resumption  took 
place  on  the  20th  of  February,  1817. 

The  second  stoppage  commenced  at  New  York  on 
the  10th  of  May,  1837,  and  was  followed  at  Phila- 
delphia on  the  11th,  at  Boston  and  Baltimore  on  the 
12th,  and  in  all  other  places  in  quick  succession. 
Resumption  took  place  at  New  York  on  the  9th  of 
May.  In  Boston,  Philadelphia,  and  places  further 
south  it  was  delayed  until  the  13th  of  August. 

Since  the  publication  of  the  first  edition  of  this 
book,  all  the  banks  in  the  United  States,  south  of 
New  York,  which  pretended  to  pay  in  specie,  sus- 
pended payment  again.  This  event  took  place  first 
in  Philadelphia,  on  the  9th  of  October,  1839,  and 
was  followed  by  the  rest  in  rapid  succession,  leaving 
only  New  York  and  New  England  in  the  enjoyment 
of  a convertible  currency.  This  suspension  has  con- 
tinued to  this  time,  and  is  expected  to  continue  until 
1841. 


June  1,  1840. 


PREFACE. 


Xlll 


to  practical  men,  than  to  appear  to  be  scientific,  and 
hence  the  reader  will  find  some  familiar  expressions, 
which  have  been  purposely  adopted,  because  every 
body  could  understand  them. 


^pril  15,  1839. 


A TREATISE 


ON 

CURRENCY  AND  BANKING- 


BOOK  FIRST. 

OF  THE  LAWS  WHICH  REGULATE  A CURRENCY  COM- 
POSED ENTIRELY  OF  THE  PRECIOUS  METALS. 

Adam  Smith,  and  other  elementary  writers  on  the 
science  of  Political  Economy,  have  shown  the  princi- 
ples upon  which  commodities  must  have  been  ex- 
changed in  that  rude  condition  of  society  which  pre- 
ceded the  use  of  metallic  money,  and  it  is  not  my  in- 
tention to  travel  over  the  same  ground,  and  occupy 
the  attention  of  the  reader  in  recapitulating  details 
with  which  he  is  probably  already  familiar.  Nor  is 
it  my  intention  to  give  a history  of  the  various  inven- 
tions to  facilitate  barter,  which  have  been  adopted  at 
various  periods  in  different  countries,  such  as  the  iise 
of  cattle,  cowry  shells,  tobacco,  iron,  and  some  other 
objects,  each  of  which  has  been  at  some  period  em- 
ployed to  perform  the  function  of  what  has  been  ap- 
propriately denominated  a medial  commodity,^’  by 
which  the  relative  value  of  other  things  could  be  deter- 
mined. I propose  at  once  to  enter  upon  the  subject 
of  currency  as  we  find  it  at  the  present  day  in  com- 
mercial nations,  and  shall  first  point  out  the  laws  by 
1 


2 


A TREATISE  ON 


which  commerce  is  carried  on  in  a country  where 
there  are  no  bank  notes  or  paper  money  of  any  kind, 
and  where  gold  and  silver  alone  constitute  the  cur- 
rency; and,  as  it  would  be  carried  on  in  every  country, 
if  there  did  not  exist  paper  money. 


CHAPTER  I. 

OF  THE  INTRINSIC  VALUE  OF  THE  PRECIOUS  METALS, 

AND  OF  THEIR  ADAPTATION  TO  THE  PURPOSES  OF 

A CIRCULATING  MEDIUM. 

Gold  and  silver,  it  is  well  known,  are  produced  in 
various  parts  of  the  globe,  at  the  cost  of  labor  and 
capital,  precisely  in  the  same  manner  that  iron,  lead, 
and  other  metals  are  produced;  and  with  regard  to 
all  the  mining  countries,  they  constitute,  if  not  the 
only,  at  least  the  most  inviting  product  of  industry  to 
which  a portion  of  the  land,  labor,  and  capital,  of 
their  inhabitants  can  be  applied.  As  products,  there- 
fore, of  industry,  they  possess  an  intrinsic  value,  like 
all  other  commodities,  dependent  upon  the  cost  of 
producing  them;  that  is,  upon  the  amount  of  the  rent 
paid  to  the  owner  of  the  land  for  the  privilege  of 
mining  them,  the  amount  paid  for  the  wages  of  the 
laborers  employed  in  digging  and  smelting  the  ore 
and  in  refining  the  metal,  and  the  amount  of  the  or- 
dinary profits  on  capital  invested  in  the  enterprise. 
Were  this  not  the  case,  it  is  evident  that  mines  would 
not  be  worked,  for  no  proprietor  of  land  or  capitalist 
would  embark  in  an  undertaking  that  would  lead  to 
certain  loss,  the  object  of  mining  not  being  to  produce 
gold  and  silver,  but  to  produce  gold  and  silver  of  a 
value  greater  than  that  of  the  capital  expended  in  its 
production.  This  much  is  premised,  in  order  that  the 


CURRENCY  AND  BANKING. 


3 


reader  may  have  at  the  outset  a clear  view  of  this 
fundamental  truth  in  political  economy,  that  gold  and 
silver  being  products  of  industry,  possess  a value  as 
real  and  substantial  as  that  which  belongs  to  any 
other  commodities;  not  indeed  founded  upon  the  basis 
of  convention,  as  some  people  imagine,  but  upon  their 
well  known  applicability  to  various  purposes  of  uti- 
lity and  ornament  for  which  no  other  materials  pos- 
sess equal  qualities,  and  which  renders  them  on  that 
account  universally  sought  for.  They  are  therefore 
not  mere  representatives  of  wealth  as  many  persons 
fancy,  but  real  wealth  itself  to  the  full  extent  of  their 
value. 

What  proportion  of  the  actual  value  of  gold  and 
silver,  as  exchangeable  for  other  commodities,  is  due 
to  their  applicability  to  objects  of  utility  and  orna- 
ment, and  what  proportion  to  their  fitness  for  the  pur- 
poses of  a circulating  medium,  now  that  they  are  ap- 
plied to  that  purpose,  it  would  not  be  easy  to  deter- 
mine; nor  is  it  at  all  necessary  to  this  investigation  that 
it  should  be  determined.  It  is  sufficient  for  us  to 
know,  that  almost  every  individual  who  can  afford  a 
silver  spoon,  or  a gold  watch,  or  a plated  or  gilt  orna- 
ment, will  have  one;  and  that  if  gold  and  silver  were 
to  be  wholly  disused  as  money,  they  would  retain  a 
large  share  of  their  present  value  for  the  purpose  of 
being  converted  into  plate  and  other  objects  of  manu- 
facture, and  in  process  of  time,  would  again  rise  to  the 
cost  of  their  production,  which  would  be  an  indispen- 
sable requisite  to  ensure  a future  fresh  supply. 

It  will,  perhaps,  remain  for  a future  day  to  develope 
all  the  reasons  why  gold  and  silver  have  become  so 
universally  adopted  by  all  civilised  people  as  the  me- 
dial commodity,  that  is,  the  commodity  in  exchange 
for  which  any  other  commodity  can  almost  always  be 
readily  had.  Those  with  which  we  are  already  ac- 
quainted, are  the  following: — 

1.  Their  uniformity  of  value,  varying  from  one 
year  to  another,  and  from  one  period  of  years  to  an- 


4 


A TREATISE  ON 


Other,  less  than  jany  other  known  commodities,  and 
therefore  well  adapted  to  be  the  commodities  of  con- 
tracts and  obligations  payable  at  a future  day. 

2.  The  universality  of  this  uniformity  of  value,  by 
which  they  serve  not  only  as  standards  for  comparing 
prices  at  different  periods  of  time,  but  prices  in  diffe- 
rent countries  at  the  same  time. 

3.  Their  convenient  portability,  possessing  a great 
value  in  a small  bulk,  and  yet  a bulk  not  too  small  for 
all  practical  purposes. 

4.  Their  divisibility  into  pieces  of  any  weight,  and 
of  the  most  exact  quantities,  and  their  convertibility 
by  fusion  back  again  into  larger  masses  without  loss. 

5.  Their  malleability  and  toughness,  which  render 
them  not  liable  to  break. 

6.  Their  susceptibility  of  receiving  impressions  as 
coins. 

7.  Their  uniformity  of  physical  quality,  pure  gold 
or  silver  being  the  same  at  all  times  and  at  all  places, 
and  thus  unlike  most  other  metals  and  commodities 
which  have  different  degrees  of  excellence. 

8.  Their  capacity  of  admixture  with  alloy  which 
renders  them  as  coins  less  destructible  by  wear  and 
tear,  and  of  their  being  again  separated  from  it  with 
very  little  loss. 

9.  Their  durability,  not  being  easily  destroyed  by 
fire,  and  not  at  all  by  rust. 

10.  Their  clear  sound  when  dropped  upon  a hard 
substance,  by  which  they  can  be  known  from  base 
metals,  and  be  thus  distinguished  from  counterfeits. 

11.  Their  specific  gravity,  which  differs  from  that 
of  other  metals  of  the  same  bulk,  and  thus  renders 
the  detection  of  counterfeits  easy  by  a practised  hand. 

The  beauty  of  the  metals  adds  to  their  value  for 
purposes  of  utility  and  ornament,  but  perhaps  not  to 
their  value  as  money;  and  hence  I have  not  embraced 
that  quality  in  the  foregoing  enumeration. 


CURRENCY  AND  BANKING. 


5 


CHAPTER  II. 

OF  THE  DISTRIBUTION  OF  THE  PRECIOUS  METALS 
THROUGHOUT  THE  COMMERCIAL  WORLD. 

All  the  gold  and  silver  annually  produced  in  the 
four  quarters  of  the  globe,  and  not  required  for  con- 
sumption in  manufactures  or  for  currency  in  the  coun- 
tries where  produced,  are  in  the  constant  course  of  dis- 
tribution throughout  the  commercial  world  in  ex- 
change for  commodities  which  are  more  desirable  to 
the  producers  than  the  metals  themselves;  and  when 
thus  distributed,  they  are  liable  in  common  .with  that 
portion  of  the  pre-existing  mass  which  retains  the 
form  of  coin  and  bullion,  to  such  further  changes  of 
place  as  the  wants  and  circumstances  of  each  particu- 
lar country  may  require.  In  these  distributions,  each 
country  does  not  equally  participate,  but  each  draws 
to  itself  that  proportion  of  the  whole  quantity  which 
is  called  for  by  the  extent  of  its  wealth,  its  population, 
its  commerce,  and  the  state  of  confidence  or  credit 
existing  amongst  its  inhabitants.  A rich  nation, 
ris  paribus^  will  require  more  gold  and  silver  than 
a poor  one — a large  population  more  than  a small* 
one — a nation  carrying  on  much  trade  more  than  one 
which  carries  on  little — and  a nation  where  confi- 
dence and  credit  are  circumscribed,  more  than  one  in 
which  they  are  expanded.  The  first  three  of  these 
propositions  are  self-evident.  The  fourth  needs  per- 
haps some  illustration,  and  as  I wish  to  leave  nothing 
in  dispute  as  I go  along,  I will  state  more  plainly 
what  is  meant  by  it,  which  is,  that  in  a country  where 
no  credits  or  comparatively  few  are  given  on  the  sale 
of  property  or  merchandise,  and  where  consequently 
payments  are  made  entirely  or  chiefly  in  coin  on  the 
delivery  of  the  articles  sold,  a larger  amount  of  gold 
.and  silver  is  required,  than  in  another  country  of  equal 


6 


A TREATISE  ON 


wealth,  population  and  trade,  in  which  sales  are  usu- 
ally or  frequently  made  on  credit. 

What  proportion  the  supply  of  the  precious  metals 
which  each  country  secures  to  itself  as  a circulating 
medium  bears  to  its  wealth,  its  population,  its  trade, 
or,  to  the  existing  state  of  confidence  or  credit,  it 
would  not  be  easy  to  ascertain:  nor  is  it  indeed  neces- 
sary that  it  should  be  ascertained,  as  far  as  any  prac- 
tical good  can  result  from  the  knowledge.  Those 
who  carry  on  the  operations  of  trade  will  take  care 
that  a country  has  neither  too  much  nor  too  little  of 
them,  and  it  may  be  assumed  as  a safe  position,  that 
when  the  precious  metals  neither  flow  out  from  a 
country  in  which  there  are  no  gold  or  silver  mines, 
nor  flow  into  it  faster  than  is  incident  to  her  additional 
share  of  the  new  annual  production  of  the  mines,  she 
has  her  exact  proportion.  These  proportions,  when 
once  attained  as  nearly  as  the  nature  of  circumstances 
will  permit,  establish  what  may  be  called  the  gene- 
ral level  of  currencies^  and  it  is  to  this  level,  as  to  a 
species  of  standard,  that  reference  is  made,  when  we 
say  that  money  like  water  will  find  its  level.  It  is 
true,  that  owing  to  the  constant  production  of  the 
mines,  which  may  at  times  occasion  unequal  distri- 
butions, or,  distributions  other  than  through  the  ac- 
customed channels,  as  was  the  case  after  the  revolu- 
tions in  Spanish  America  took  place,  which  caused  to 
be  sent  first  to  the  United  Slates  or  England,  the 
metals  which  formerly  all  went  to  Spain,  as  well  as 
to  a great  variety  of  other  circumstances  which  dis- 
turb the  currency  of  particular  countries,  this  level 
may  never  be  a perfect  one.  It  is  sufficiently  so,  how- 
ever, for  all  purposes  of  reasoning  upon  it,  and  per- 
haps as  much  so  as  fully  warrants  the  figure  by  which 
a fluid-like  property  is  ascribed  to  the  precious  metals. 
The  surface  of  the  ocean  is  never  free  from  undula- 
tion, and  the  daily  operation  of  the  tides  is  constantly 
interfering  with  its  level,  as  well  as  with  that  of  rivers. 
Moral  causes,  operating  like  the  physical  causes  which 


CURRENCY  AND  BANKING. 


7 


influence  the  movement  of  the  waters,  operate  upon 
gold  and  silver,  in  driving  them  from  one  place  to  ano- 
ther, but  it  is  easily  to  be  seen,  that  were  the  extent  of 
wealth,  population,  commercial  transactions,  and  con- 
fidence, in  all  countries  to  remain  the  same  for  a long 
period  together,  and  were  the  new  productions  of  the 
mines  to  be  distributed  in  due  proportions,  and  the 
old  stock  in  each  country  to  be  diminished  by  con- 
sumption in  an  equal  ratio,  gold  and  silver  would 
assume  such  a uniformity  of  exchangeable  value,  as 
to  arrive  at  a perfect  state  of  quiescence.  Indeed,  as 
it  is,  gold  and  silver  are  of  all  commodities  the  least 
likely  to  be  exported  from  any  country,  except  from 
those  in  which  they  are  produced,  and  where  of  con- 
sequence they  form  a portion  of  the  produce  of  the 
land  and  labor  of  the  people,  as  iron  and  lead  do  in 
some  other  countries;  or,  from  those  which,  in  addi- 
tion to  their  supply  for  the  purpose  of  currency,  have 
possessed  themselves  of  an  amount  specifically  in- 
tended for  exportation  to  countries  having  products 
not  procurable  by  any  other  means  than  by  purchase 
with  gold  and  silver.  ^ We  may  therefore  conclude, 
that  a level  does  exist,  created  as  will  be  seen  here- 
after, by  the  imports  and  exports  of  commodities  other 
than  the  precious  metals  themselves,  towards  which 
the  currencies  of  all  countries  have  a perpetual  ten- 
dency, and  from  which,  if  they  do  not  precisely  con- 
form to  it,  they  do  not  greatly  depart. 

*From  the  period  of  the  Independence  of  the  United  States 
up  to  about  the  year  1823,  nearly  all  their  imports  from  China 
and  India  were  paid  for  by  an  exportation  of  silver  dollars, 
brought  into  the  country  in  addition  to  the  supply  required  for 
the  currency.  Since  the  year  mentioned,  the  chief  part  of  the 
China  and  India  cargoes,  are  paid  for  by  credits  or  bills  on 
London,  exports  of  manufactures,  and  by  coin  procured  in 
Europe. 


8 


A TREATISE  ON 


CHAPTER  III. 

ON  THE  RELATIVE  VALUE  OF  GOLD  AND  SILVER. 

Gold  and  silver,  like  all  other  commodities,  have 
each  their  own  peculiar  value  founded  upon  the  im- 
mutable law  of  supply  and  demand,  by  which  all 
values  are  determined.  The  scarcity  of  the  one  com- 
pared with  that  of  the  other,  in  connection  with  the 
difference  in  their  respective  costs  of  production,  that 
is,  of  the  expenses  of  mining  and  smelting  the  ore,  and 
of  refining  the  metal,  establish  between  them  a very 
wide  difference  as  regards  their  relative  value.  An 
ounce  of  pure  gold  has  always  been,  and  probably 
always  will  be,  worth  more  than  an  ounce  of  pure 
silver.  But  the  ratio  of  this  difference,  it  must  be 
manifest,  is  not  fixed  by  any  law  of  nature,  any  more 
than  the  ratio  between  any  two  other  commodities. 
Nature  does  not  say,  that  an  ounce  of  gold  shall  al- 
ways be  worth  so  many  ounces  of  silver,  any  more 
than  she  says  that  a pound  of  copper  shall  always  be 
worth  so  many  pounds  of  iron,  or  a pound  of  cotton 
so  many  pounds  of  flour,  and  hence  it  is  clear,  that 
there  is  no  law  of  nature  applicable  to  gold  and  silver, 
which  is  not  equally  applicable  to  all  other  commodi- 
ties. 

What  nature,  however,  has  left  undone,  man  in  his 
limited  wisdom  has  attempted  to  accomplish,  by  the 
enactment  of  laws  fixing  the  ratio  at  which  gold  and 
silver  shall  be  exchangeable  for  each  other.  These 
laws,  when  first  enacted,  were  no  doubt  founded  upon 
the  observation  of  the  fact,  that  in  the  general  market 
of  the  commercial  world,  these  two  metals  had,  for 
long  periods  together,  preserved  something  like  a fixed 
proportion,  and  it  was  no  doubt  conceived,  that  chain- 
ing them  together  by  statute,  would  prevent  them 
from  ever  separating. 


CURRENCY  AND  BANKING. 


9 


We  learn  from  Adam  Smith,*  that  prior  to  the  dis- 
covery of  the  American  mines,  which  first  began  to 
show  its  efiects  somewhere  about  the  year  1570,  in 
the  diminished  value  of  both  the  precious  metals  by 
the  new  and  annually  augmenting  supplies  which 
were  derived  from  that  fruitful  source,  the  value  of 
pure  gold  to  pure  silver  was  established  in  the  diffe- 
rent mints  of  Europe,  at  proportions  varying  from 
one  to  ten,  to  one  to  twelve;  that  is,  one  ounce  of  pure 
gold,  was  declared  to  be  the  equivalent  of  ten  to  twelve 
ounces  of  pure  silver;  and  in  their  respective  coinages 
these  proportions  were  consequently  observed.  At 
about  the  middle  of  the  17th  century,  that  is,  about 
the  year  1650,  the  ratio  between  gold  and  silver  came 
to  be  regulated  in  the  proportion  of  one  to  fourteen, 
and  one  to  fifteen  ounces  of  silver,  no  doubt  occasioned 
by  the  fact,  that  although  both  metals  had  become 
more  abundant  in  proportion  to  the  demand,  and  had 
both  been  depreciated  below  their  former  value,  yet 
silver  had  depreciated  more  than  gold,  to  an  extent 
that  had  created  new  proportions  in  the  general  mar- 
ket, which  it  was  the  design  of  the  new  laws  to  follow 
up. 

From  the  period  last  mentioned,  there  does  not  ap- 
pear to  have  been  any  material  change  in  the  relative 
value  of  gold  and  silver  in  the  general  market  of  the 
trading  world  prior  to  the  beginning  of  the  present 
century,  when  a further  depreciation  of  silver  in  refe- 
rence to  gold  began  to  show  itself,  so  that  by  the  year 
1820,  an  ounce  of  gold  came  to  be  worth  near  sixteen 
ounces  of  silver,  of  which  the  consequence  vras,  that 
all  the  gold  coins  of  the  United  States,  where  the  mint 
proportion  had  been  fixed  at  one  to  fifteen,  were  ex- 
ported from  the  country,  to  be  exchanged  for  their 
proper  equivalent.! 

* Wealth  of  Nations,  Book  I.  Chap.  xi. 

I In  corroboration  of  this  fact,  the  following  statement  of  the 


10 


A TREATISE  ON 


The  author  believes  that  he  was  one  of  the  first,  if 
not  the  first,  writer  in  this  country  who  called  the  at- 
tention of  the  public  to  this  new  change,  and  appre- 
hensive at  the  time,  that  the  legislative  folly  of  attempt- 
ing to  establish  by  law  what  nature  herself  could  not 
establish,  would  be  repeated  by  a new  enactment,  he 
urged  in  December,  1821,  upon  the  late  Mr.  Lowndes, 
a representative  in  congress  from  South  Carolina,  and 
chairman  of  the  committee  of  finance,  the  expediency 
of  abolishing  the  coinage  of  eagles  and  their  fractional 
parts,  and  of  substituting  in  their  place  new  pieces,  to 
weigh  respectively  an  ounce,  a half  ounce,  and  a quar- 
ter of  an  ounce  of  standard  gold,  under  the  full  convic- 
tion that  they  would  soon  be  introduced  into  circula- 
tion at  their  proper  equivalent,  without  involving  us 
in  the  absurdity  of  having  two  legal  tenders.*  The 
arguments  presented  to  Mr.  Lowndes  in  conversation 
were  at  his  particular  request  reduced  to  writing,  to- 
gether with  answers  to  two  points  raised  by  him,  and 
were  published  in  the  National  Gazette  of  26th  Janu- 
ary, 1822.  A copy  of  this  paper  will  be  found  in  the 
Appendix,  marked  A. 

The  death,  in  the  course  of  the  last  mentioned  year, 

coinage  of  Gold  by  the  mint  of  the  United  States,  at,  and  about 
the  period  referred  to,  is  adduced. 


1818, 

g242,940. 

1819, 

258,615, 

1820, 

1,319,030, 

1821, 

189,325, 

1822, 

88,980, 

1823, 

72,425, 

1824, 

. 93,200. 

This  diminution  in  the  coinage  of  gold  after  1820  arose  from 
the  circumstance  that  nobody  wished  to  import  gold  into  the 
country  to  have  it  coined  into  eagles  at  ten  dollars  each,  when 
the  gold  contained  in  an  eagle  was  worth  more  than  ten  dollars^ 
* The  ducat  of  Holland  is  current  all  over  the  continent  of 
Europe  at  its  fair  equivalent.  Gold  in  France  circulates  at  the 
market  rate  of  premium,  silver  being  the  ordinary  currency. 


CURRENCY  AND  BANKING. 


11 


of  Mr.  Lowndes,  who  was  one  of  the  few  individuals 
in  congress  who  had  studied  the  subject  of  the  coinage, 
appeared  to  suspend  the  action  of  that  body  in  regard 
to  the  alteration  of  the  mint  regulations,  and  although 
several  propositions  were  at  different  periods  subse- 
quently submitted,  yet  nothing  was  done  until  the 
28th  of  June,  1834,  when  the  law  usually  known  as 
the  gold  bill  was  passed.  A short  history  of  these 
propositions  was  drawn  up  by  the  author  in  the  last 
named  year,  and  as  it  may  be  of  service  to  those  who 
have  a desire  to  study  the  subject,  extracts  therefrom 
have  been  placed  in  the  Appendix  marked  B. 

In  connection  with  this  subject,  it  may  not  be  amiss 
to  remark,  that  the  proportion  of  one  to  fifteen  or  six- 
teen in  the  relative  value  of  gold  to  silver,  does  not  by 
any  means  warrant  the  inference  that  there  is  just  fif- 
teen or  sixteen  times  as  much  silver  as  gold  in  exis- 
tence. Adam  Smith  advances  conclusive  arguments 
to  show  that  the  quantity  of  silver  at  the  time  he  wrote 
was  far  greater  than  the  proportion  which  it  bore  to 
gold  called  for,  and  indeed  any  one  may  be  convinced 
of  this  fact  if  he  will  reflect  upon  the  very  small  value 
of  gold  compared  with  silver,  that  is  consumed  in  plate 
and  ornaments.  The  relative  value  of  no  two  com- 
modities determines  their  relative  quantities,  and  it  is 
easy  to  be  perceived,  that  if  a barrel  of  flour  were 
worth  ten  dollars,  and  a box  of  Spanish  segars  twenty 
dollars,  it  would  not  necessarily  follow  that  there  were 
in  existence  only  twice  as  many  barrels  of  flour  as 
there  were  boxes  of  segars. 


12 


A TREATISE  ON 


CHAPTER  IV. 

OF  THE  BALANCE  OF  TRADE,  OR  OF  THE  CAUSES  WHICH 
OCCASION  THE  TRANSMISSION  OF  THE  PRECIOUS 
METALS  FROM  ONE  COUNTRY  TO  ANOTHER. 

In  a preceding  chapter,  it  was  stated  that  the  pre- 
cious metals  are  distributed  by  the  operations  of  com- 
merce throughout  the  trading  world,  in  such  a way 
as  to  establish  what  is  called  a general  level  of  cur- 
rencies. I shall  now  proceed  to  show  the  mode  by 
which  this  distribution  is  accomplished,  which  is  ac- 
cording to  the  laws  of  what  is  termed  the  balance  of 
trade. 

It  must  be  manifest  to  every  observant  mind,  that 
even  under  the  most  perfect  level  which  the  curren- 
cies of  all  commercial  nations  can  attain,  that  is,  under 
such  a state  of  things  as  may  be  imagined  where  no 
motive  of  profit  could  lead  to  the  importation  or  ex- 
portation of  the  precious  metals,  except  as  relates  to 
the  annual  production  of  the  mines,  the  prices  of  other 
commodities  will  not  be  in  all  countries  the  same. 
Were  this  the  case  there  could  be  no  commerce,  for 
the  only  object  of  commerce  is  to  transport  commodi- 
ties from  countries  where  they  can  be  purchased  for 
a comparatively  small  quantity  of  gold  and  silver;  that 
is,  at  a comparatively  low  price;  to  other  countries 
where  they  can  be  sold  for  a greater  quantity  of  gold 
and  silver;  that  is,  at  a higher  price.*  Any  one  can 

The  reader  will  be  pleased  to  keep  in  mind,  that  joncc  in 
political  economy  is  the  value  of  a thing  expressed  in  money 
only,  and  therefore  differs  from  the  term  value^  which  expresses 
the  worth  of  things  as  compared  with  other  things  than  gold  and 
silver.  Thus  W’e  would  say  that  five  dollars  is  the  price  oi  a 
hat,  where  money  is  to  be  paid  for  it,  but  we  would  say  that 
five  pairs  of  shoes  are  the  value  of  a hat,  if  the  hat  is  to  be  paid 
for  in  that  many  shoes. 


CURRENCY  AND  BANKING. 


13 


perceive  that  iron  would  not  be  imported  into  the 
United  States  from  England  unless  it  could  be  sold 
here  at  a higher  price  than  it  cost  at  the  place  of  pro- 
duction, and  that  cotton  would  not  be  exported  from  the 
United  States  to  Europe  unless  it  could  be  sold  there 
at  a higher  price  than  it  could  be  purchased  for  here. 
The  prices  of  different  articles,  it  is  self-evident,  in 
every  country,  are  regulated  by  causes  peculiar  to 
themselves,  such  as  the  soil,  climate,  wages  of  labor, 
degree  of  skill  required,  extent  of  population,  capital, 
and  taxation;  and  this  it  is  which  sets  in  motion  the 
whole  machinery  of  commerce.  Even  in  the  case  of 
barter  with  savage  nations,  although  gold  and  silver 
be  absent,  yet  the  trader  has  reference  in  his  calcula- 
tions to  the  metallic  standard,  in  order  to  enable  him 
to  determine  how  much  he  can  afford  to  give  of  what 
he  has  to  dispose  of,  in  exchange  for  the  commodities 
which  he  is  to  receive  in  payment. 

The  foreign  commerce  of  a nation  is  usually  of  two 
kinds.  The  first  is  that  wherein  the  export  and  im- 
port trade  are  carried  on  by  the  same  individual,  in 
the  same  vessel,  and  in  the  prosecution  of  the  same 
voyage.  Such  is  the  trade  of  the  United  States  with 
most  parts  of  the  West  Indies,  South  America,  Africa, 
some  parts  of  India,  and  some  other  countries.  The 
imports  from  those  regions  consist  of  the  articles  pur- 
chased with  the  proceeds  of  the  outward  cargoes,  and 
this  trade  is  strictly  an  exchange  of  equal  values,  and 
although  it  may  exhibit  what  is  called  a balance  of 
trade  on  one  side  or  the  other,  yet  it  calls  for  no  pay- 
ment. The  same  is  true  of  the  whale  and  other  fish- 
eries, wherein  although  the  amount  imported  may  far 
exceed  in  value  the  amount  exported,  yet  no  balance 
of  trade  is  left  to  be  paid,  the  difference  being  made 
up  by  the  value  of  the  labor  expended  by  the  crew, 
of  the  freight  earned  by  the  ship,  and  by  the  profits  of 
the  enterprise. 

The  second  trade  is  that  wherein  the  exports  and 
imports  are  made  by  different  classes  of  merchants. 


14 


A TREATISE  ON 


without  any  previous  consultation  or  agreement  with 
one  another.  Such  is  our  trade  with  Great  Britain 
and  most  of  the  other  maritime  nations  of  Europe. 
The  exporters  of  cotton,  rice,  tobacco,  flour,  and  the 
other  commodities  which  form  the  bulk  of  our  exports 
to  Europe,  are  very  rarely  the  same  individuals  who 
import  the  dry  goods,  hardware,  and  the  infinite  vari- 
ety of  other  manufactures  and  productions  which  con- 
stitute the  bulk  of  our  imports  from  Europe.  The 
former  ship  their  cargoes  to  foreign  countries,  without 
any  knowledge  of  the  quantity  or  value  of  the  com- 
modities which  the  importing  merchants  intend  to  or- 
der from  abroad,  and  the  latter  send  their  orders 
abroad  f >r  goods  without  any  knowledge  of  the  amount 
for  which  the  exported  cargoes  will  be  sold.  The 
former  class,  that  is,  the  exporters,  get  paid  for  their 
cargoes  by  drawing  bills  of  exchange  upon  the  pro- 
ceeds in  the  hands  of  their  foreign  correspondents; 
and  the  latter  class,  or  the  importers,  pay  for  their 
goods  by  purchasing  and  remitting  these  same  bills. 

Under  a course  of  operations  carried  on  by  so  many 
independent  traders,  it  would  indeed  be  miraculous  if 
the  exports  and  imports  should  be  so  exactly  equal  as 
to  leave  no  balance  one  way  or  the  other.  In  truth, 
experience  shows  that  the  exports  will  sometimes  ex- 
ceed the  imports,  and  that  sometimes  the  imports  will 
exceed  the  exports,  leaving  a balance  of  trade  in  the 
former  case  in  favor  of  the  country,  and  in  the  latter 
case  against  it. 

Let  us  now  suppose,  that  in  a given  country  where 
the  currency  is  at  its  proper  level,  where  no  gold  or 
silver  flows  out  or  flows  in,  and  where  consequently 
exchange  would  be  at  par,  an  excess  of  imports  should 
take  place.  What  would  be  the  first  effect?  The 
answer  must  be,  a demand  for  more  bills  of  exchange 
than  are  for  sale  in  the  market,  the  effect  of  which  is  a 
rise  in  the  rate  of  exchange  above  par,  which  obvi- 
ously holds  out  an  inducement  for  the  exportation  of 
commodities  for  which  a sufficient  inducement  did  not 


CURRENCY  AND  BANKING. 


15 


previously  exist.  A rise  in  the  exchange  of  one  or 
two  per  cent,  may  sometimes  determine  shipments, 
which  without  such  rise  would  not  have  been  thought 
of;  not  that  so  small  a profit  would  of  itself  induce 
shipments,  but  because  one  or  two  per  cent,  added  to 
the  profit  which  might  have  been  made  without  such 
addition,  would  elevate  the  gain  to  the  height  of  the 
average  mercantile  rate  of  profit  requisite  to  warrant 
a shipment.  A profit  in  advance  is  a powerful  stim- 
ulus to  exportation,  especially  where  two  thirds  or 
three  fourths  of  the  capital  employed  in  the  purchase  of 
the  exported  commodities  can  be  immediately  replaced 
by  the  sale  of  a bill  of  exchange.  The  additional  de- 
mand, therefore  for  bills,  to  assist  towards  paying  the 
balance  is  met,  we  will  suppose,  at  once  by  additional 
exports,  it  sometimes  even  happening  that  the  remit- 
ting merchant,  to  save,  as  it  is  called,  the  premium  on 
bills,  becomes  himself  an  exporter. 

Thus  far  it  is  manifest  that  the  balance  of  trade 
occasions  no  exportation  of  the  precious  metals,  and 
that  consequently  the  general  level  ef  currencies  is 
not  disturbed.  But  it  may  happen  that  the  increased 
demand  for  exportable  commodities  arising  from  the 
augmented  premium  on  exchange,  may  raise  their 
price  to  an  extent  equal  to  the  rise  in  the  price  of  bills, 
and  thus  put  an  end  to  their  exportation,  by  taking 
away  the  additional  profit.  A new  expedient  is  then 
resorted  to  by  capitalists  to  take  advantage  of  the  pre- 
mium on  exchange,  which  is  to  obtain  a credit  abroad 
upon  which  they  may  draw  bills,  under  the  calcula- 
tion that  at  some  future,  not  very  distant  period,  they 
will  be  able  to  replace  the  funds  at  a lower  rate  of 
exchange,  and  thereby  realise  a profit  by  the  opera- 
tion. The  transmission,  too,  of  public  securities,  bank, 
railroad,  and  canal  stocks,  and  the  extension  of  cre- 
dits by  the  consent  of  the  foreign  creditors  upon  allow- 
ing interest  for  the  extended  term,  are  all  well  known 
levers  in  the  mechanism  of  trade,  (to  say  nothing  of 
bankruptcy),  by  which  the  tendency  of  an  unfavora- 


16 


A TREATISE  ON 


ble  balance  of  trade  to  cause  an  exportation  of  the 
precious  metals  is  frequently  neutralised.  But  it  may 
happen,  however,  that  all  these  measures  combined 
will  not  keep  down  the  price  of  bills  of  exchange  to 
the  rate  which  will  render  them  more  advantageous 
to  remit  than  gold  or  silver.  That  an  exportation  of 
the  precious  metals  will  then  commence  is  quite  appa- 
rent, but  compared  with  the  whole  balance  that  may  be 
due,  it  will  be  exceedingly  trivial,  as  I will  proceed 
to  show. 

We  will  suppose  ten  millions  of  dollars  to  be  the 
circulating  medium  of  the  supposed  debtor  country, 
and  that  that  is  the  amount  which  is  requisite  to  cir- 
culate her  commodities  and  to  maintain  her  currency 
at  an  equivalency  with  the  currencies  of  other  coun- 
tries. No  sooner  does  this  quantity  become  dimi- 
nished by  the  exportation  of  any  part  of  it,  than  a 
scarcity  of  money  begins  to  be  felt.  A scarcity  of 
money  invariably  occasions  a fall  in  the  prices  of  com- 
modities, as  every  body  knows,  and  that  fall  operates 
?.s  an  incentive  to  exportation,  inasmuch  as  domestic 
products,  which  were  before  too  high  to  export,  will 
now  afford  a profit.  A fall  in  the  price  of  cotton  of 
one  cent  a pound  has  sometimes  occasioned  the  expor- 
tation of  immense  quantities  in  a short  period;  and  it  is 
very  clear  that  there  is  a price  at  which  almost  any 
article  might  be  exported  to  advantage,  and  that  a 
gradual  diminution  of  the  currency,  if  continued  long 
enough,  will  eventually  establish  that  price.  It  is  idle 
to  say  that  possibly  the  debtor  country  may  not  have 
on  hand  a sufficiency  of  products  to  discharge  the 
debt,  and  that  therefore  she  must  be  drained  of  her 
precious  metals  to  the  last  dollar.  This  can  never  be. 
If  her  wealth  or  her  powers  of  production  had  not 
been  commensurate  to  her  demand  for  foreign  com- 
modities, she  could  not  have  had  sufficient  credit  to 
run  deeply  into  debt.  At  all  events,  she  would  have 
on  hand  a large  portion  of  the  foreign  commodities 
in  the  purchase  of  which  the  debt  was  incurred,  and 
a scarcity  of  money  might  even  bring  down  prices  so 


CURRENCY  AND  BANKING. 


17 


low  as  to  render  the  exportation  of  foreign  commodi  • 
ties  a profitable  trade.  It  might  even  be  an  object  to 
send  back  to  the  place  of  production  the  very  commo- 
dities, the  importation  of  which  created  the  unfavo- 
rable balance.  ^ It  is  quite  probale  that  a very  small 
reduction  of  the  amount  of  coin  would  produce  such 
a fall  in  the  prices  of  commodities  as  would  lead  to 
their  exportation  to  an  extent  adequate  to  keep  down 
the  price  of  bills  so  as  to  prevent  any  further  expor- 
tation of  the  precious  metals;  but  if  this  should  not  be 
the  case,  and  if  the  scarcity  of  money  should  continue 
to  increase,  those  who  had  remittances  to  make  would 
either  become  bankrupt  and  make  no  remittances  at 
all,  or  become  so  embarrassed  as  to  default  in  their 
punctuality,  either  of  which  events  would  diminish 
the  demand  for  funds  abroad,  and  stop/?ro  tanto  the 
exportation  of  gold  and  silver,  t And  here  it  may  be 
remarked  by  the  way,  that  a real  scarcity  of  money 
is  always  accompanied  by  an  artificial  scarcity  which 
aggravates  the  effects  of  the  former.  If,  for  instance, 
a million  of  dollars  in  coin  be  exported,  so  as  to  pro- 
duce an  outcry  about  scarcity  of  money,  timid  people 
and  speculators  will  withhold  another  million  from 
circulation;  the  former  because  they  are  afraid  to  lend 
it,  and  the  latter  because  they  expect  to  profit  by  for- 
cing down  the  prices  of  property  and  commodities  to 
a still  lower  point,  the  effect  of  which  would  be  to 
diminish  the  demand  for  the  exportation  of  coin  by 
reducing  the  prices  of  commodities. 

But  independent  of  the  tendency  of  the  causes  above 


* British  goods  have  frequently  been  sent  back  from  the  Uni- 
ted States  to  England,  as  affording  the  best  market  for  them, 
and  it  is  a very  common  thing  for  vessels  to  bring  back  from 
the  West  Indies  part  of  their  outward  cargoes,  owing  to  their 
being  worth  more  at  home  than  they  could  be  sold  for  abroad. 

fAll  the  propositions  here  laid  down,  have  recently  been 
fully  established  as  practical  truths  in  the  United  States,  and 
especially  at  New  York  even  to  the  reshipping  of  British  goods 
to  England. 


2 


18 


A TREATISE  ON 


enumerated,  to  restrain  the  exportation  of  specie,  ano- 
ther operation  simultaneously  takes  place,  which  adds 
to  their  efficiency.  This  is,  the  cessation  of  fresh  im- 
ports, owing  to  the  fall  in  prices  of  foreign  commodities, 
occasioned  by  the  existing  scarcity  of  money.  This 
cessation,  even  though  it  be  but  for  a short  period, 
affords  time  for  the  exportation  of  the  products  of  the 
country  which  had  not  previously  been  brought  into 
market;  and  although  the  tendency  of  an  unfavora- 
ble balance  of  trade  is  unquestionably  to  drive  the 
precious  metals  from  a debtor  country;  yet  in  point 
of  fact  it  does  not  effect  it,  for  the  reasons  above  sta- 
ted, beyond  a very  limited  extent.  But  were  this, 
however,  not  the  case,  an  outward  stream  would  soon 
be  met  by  an  inward  one.  The  low  prices  of  domes- 
tic products  would  soon  invite  the  attention  of  foreign- 
ers, who,  to  obtain  them,  would  bring  into  the  coun- 
try, not  foreign  commodities,  which  from  their  low 
price  could  only  be  sold  at  a loss,  but  the  precious 
metals.  ^ Whifst  gold  and  silver  would  be  flowing 
out  of  the  country  in  some  directions  it  would  be  flow- 
ing into  it  from  others,  and  sooner  or  later  the  equi- 

* During  the  panic  of  1834,  when  the  scarcity  of  money 
greatly  lowered  the  prices  of  commodities,  the  amount  of  specie 
imported  into  the  United  States  for  the  purchase  of  cotton  at  the 
low  price  of  the  period  was  very  great,  as  will  appear  from  the 
following  official  table. 

Table  of  Imports  and  Exports  of  gold  and  silver  coin  and  bullion  from 
18:21  to  1838,  each  year  ending  on  30^4  of  September, 


Imported. 

Exported. 

Imported. 

Exported. 

1821 

$8,064,890 

^10,478,059 

1830 

8,155,964 

2,178,773 

1822 

3,369,846 

10,810,180 

1831 

7,304,945 

9,014,931 

1823 

5,097,896 

6,372,987 

1832 

5,907,504 

5,656,340 

1824 

6,473,095 

7,014,552 

1833 

7,070,368 

2,611,701 

1825 

6,150,766 

8,797,055 

1834 

+17,911,632 

2,076,758 

1826 

6,880,966 

4,663,795 

1835 

13,131,447 

6,477,775 

1827 

8,151,130 

8,014,880 

1836 

13,400,881 

4,324,336 

1828 

7,489,741 

8,243,476 

1837 

10,506,414 

5,976,249 

1829 

7,403,602 

4,924,020 

1838 

17,747,116 

3,513,565 

t A part  of  this  amount  was  the  result  of  the  passage  of  the  gold 
bill  of  28th  of  June  of  this  year,  and  to  the  same  bill  is  to  be  ascribed 
the  large  importations  of  1835  and  1836. 


CURRENCY  AND  BANKING. 


19 


librium  would  be  restored,  and  the  double  current 
arrested. 

It  may  here  be  remarked,  that  the  accounts  current 
between  nations  in  their  commercial  dealings,  that  is, 
between  the  individual  merchants  of  one  country  and 
those  of  another,  which  is  the  only  sense  in  which 
we  speak  of  commercial  transactions  between  nations, 
are  not  periodically  settled  like  the  accounts  between 
individuals  of  the  same  country,  which  are  generally 
settled  by  the  actual  payment  of  the  balance.  Na- 
tional accounts  current  are  never  settled.  The  balance 
may  be  one  way  to-day  and  another  way  to-morrow, 
and  as  there  is  no  general  pay  day,  like  the  first  of 
January,  upon  which  a general  balance  is  struck, 
facilities  are  afforded  for  warding  off  such  a pressure 
on  the  bill  market  as  would  exist  if  a periodical 
punctuality  were  rigidly  enforced. 

Having  thus  given  a detail  of  the  operations  which 
would  take  place  under  an  unfavorable  balance  of 
trade,  I will  say  a few  words  upon  those  which  would 
occur  under  a favorable  balance.  And  in  doing  this, 
we  will  take  for  illustration  the  same  country  that  we 
have  just  been  considering,  and  will  suppose  that  an 
excess  of  exports  should  take  place.  Of  such  a state 
of  things,  what  would  be  the  first  effect?  The  answer 
must  be,  a fall  in  the  price  of  bills  of  exchange  in  the 
market.  More  money  would  have  to  be  drawn  for 
than  the  amount  required  to  pay  for  the  imports,  and 
the  competition  of  the  bill  drawers  might  reduce  the 
rate  of  exchange  down  to  the  point  at  which  it  would 
be  more  profitable  for  them  to  import  gold  and  silver 
from  abroad,  than  to  draw  bills.  Still  the  quantity 
that  would  be  thus  imported,  would  be  comparatively 
limited.  The  very  existence  of  a foreign  balance  in 
favor  of  the  country,  would  be  proof  of  the  ability 
of  the  nation  to  consume  an  additional  amount  of 
foreign  commodities,  and  the  gain  which  could  be 
made  by  the  importing  merchants  of  one  or  two  per 
cent,  on  the  exchange,  by  buying  bills  below  par, in 


20 


A TREATISE  ON 


addition  to  the  usual  profits,  would  invite  to  more  ex- 
tensive importations.  Additional  importations  would 
in  fact  take  place,  and  the  supply  of  these  new  com- 
modities would  be  met  by  a corresponding  demand  on 
the  part  of  those  whose  means  of  consumption  from 
extraordinary  crops  or  extraordinary  profits  on  their 
business,  had  thus  become  augmented. 

But  a fall  in  the  price  of  bills  would  have  a ten- 
dency to  discourage  the  exports  of  domestic  products, 
and  this  discouragement,  in  its  turn,  would  have  the 
effect  of  raising  the  price  of  bills  by  a diminution  of 
the  supply  in  the  market,  and  thereby  of  removing 
the  motive  for  the  importation  of  the  precious  metals. 
The  importation  of  gold  and  silver,  however,  should 
it  commence,  would  make  money  plentier  than  before, 
and  thus  raise  the  prices  of  commodities,  foreign  as 
well  as  domestic.  This  rise  in  price  would  encourage 
the  importation  of  foreign  commodities,  because  they 
could  be  sold  at  an  increased  profit,  whilst  it  would 
discourage  the  exportation  of  domestic  products,  by 
which  means  a part  of  the  specie  previously  imported 
would  again  be  exported,  in  preference  to  the  domes- 
tic products,  which  could  only  be  procurable  at  an 
augmented  price.  It  thus  appears,  that  a favorable 
balance  of  trade,  although  it  has  a tendency  to  bring 
the  precious  metals  into  a country,  yet  in  point  of  fact 
it  does  not  effect  it  beyond  a limited  amount,  resem- 
bling in  this  particular,  the  former  case  of  an  unfavo- 
rable balance;  two  streams  might  be  flowing,  one  into 
the  country  and  one  out  of  it,  and  sooner  or  later  the 
equilibrium  would  be  restored,  and  the  level  regained. 

Thus  it  would  be  impossible  to  retain  in  any  coun- 
try any  more  than  its  true  share  of  the  aggregate  mass 
of  the  gold  and  silver  of  the  trading  world,  or  to  ex- 
clude from  it  any  portion  of  that  share.  No  human 
contrivance  or  legislation  could  possibly  effect  either, 
and  hence  all  the  efforts  which  have  been  made  in  all 
parts  of  the  world  to  alter  what  the  natural  laws  of 
commerce  have  decreed,  by  prohibiting  the  exporta- 


CURRENCY  AND  BANKING. 


21 


tion  of  the  precious  metals  under  heavy  penalties,  or 
by  attempting  to  encourage  their  importation  by  pro- 
tective or  prohibitory  duties  on  merchandise,  or,  by 
resorting  to  any  other  expedient,  have  proved  utterly 
futile.  Money,  as  has  been  said,  like  water,  will  find 
its  level,  and  although  the  former  like  the  latter,  may 
for  a period  be  forced  into  unnmtural  channels,  the  de- 
viation cannot  long  continue. 

And  here,  I will  take  occasion  to  remark,  that  in 
forming  an  estimate  of  the  comparative  value  of  the 
exports  and  imports  of  the  United  States,  the  custom 
house  returns,  as  they  appear  in  their  aggregates,  are 
but  imperfect  guides  to  determine  the  balance  of 
trade.  The  value  of  the  exports  given  is  their  value 
at  the  time  and  place  of  shipment,  as  furnished  by  the 
shippers  under  oath,  in  the  form  of  manifests.  The 
value  of  the  imports,  is  their  cost  abroad,  as  ascer- 
tained by  the  invoices,  also  furnished  under  oath, 
subject  to  such  revision  by  the  custom  house  apprai- 
sers as  may,  in  case  of  suspected  fraud  in  the  valua- 
tion of  goods  chargeable  with  ad  valorem  duties,  be 
deemed  right  and  just.  These  foreign  invoices  em- 
brace the  cost  of  the  articles,  and  what  are  called  the 
shipping  charges,  that  is,  the  charges  without  the 
payment  of  which  they  could  not  be  put  on  shipboard, 
but  include  no  frieght,  or  insurance;  and  where  they 
are  made  out  in  Brazil,  Buenos  Ayres  or  other  coun- 
tries, where  a depreciated  paper  currency  exists,  due 
allowance  is  made  for  the  depreciation. 

Now,  as  cargoes  shipped  abroad  from  the  United 
States,  are  burthened  with  the  expenses  of  freight  and 
insurance,  their  value  at  foreign  ports  must  generally 
be  augmented  by  the  amount  of  these  expenses  and 
the  profits  on  the  voyage,  and  consequently  the  nett 
proceeds  of  their  sales  must  always  furnish  a fund 
adequate  to  the  purchase  of  foreign  commodities  to  a 
greater  value  than  their  cost  at  home.  On  this  ac- 
count it  necessarily  follows,  that  where  the  trade  of  a 
country  is  profitable,  its  imports  will  always  exceed  its 
exports,  and  this  too,  just  in  the  degree  that  it  is  profi- 


22 


A TREATISE  ON 


table,  and  nothing  is  clearer  than  that  if  the  voyage 
out  and  home  does  not  give  a greater  amount  of  im- 
ports than  of  exports,  the  trade  would  be  abandoned. 
Of  this  proposition  there  can  be  no  dispute,  and  it  is 
quite  probable  that  an  export  of  a hundred  millions  of 
dollars  would  purchase  abroad  as  many  commodities 
as  would  show  an  import  on  the  custom  house  books 
of  a hundred  and  twenty  or  more  millions  of  dollars, 
thus  overthrowing  the  theory  of  that  class  of  reasoners 
who  maintain  that  the  balance  of  trade  is  against  a 
country  when  it  imports  more  than  it  exports,  and 
who  consequently  believe  that  a nation  is  growing 
poor  when  she  is  in  reality  growing  rich. 

But  to  make  this  matter  perfectly  plain,  I will  illus- 
trate it  by  a practical  case  that  every  body  can  under- 
stand. 

A merchant  in  Philadelphia  purchases  one  thou- 
sand barrels  of  flour  at  eight  dollars  per  barrel,  and 
ships  it  to  the  West  Indies.  The  custom  house  books 
in  this  case  would  show  an  export  of  eight  thousand 
dollars.  On  the  arrival  of  the  cargo  abroad  it  sells 
for  twelve  dollars  per  barrel,  and  after  paying  freight, 
duties,  commissions,  and  all  other  charges,  leaves  the 
nett  proceeds  ten  thousand  dollars.  This  sum  is 
invested  in  coffee,  and  brought  home,  where  it  is 
entered  upon  the  custom  house  books  as  an  import  of 
that  amount.  Here,  then,  we  would  have  an  export 
of  eight  thousand  dollars  and  an  import  of  ten  thou- 
sand dollars,  showing  a clear  gain  of  two  thousand 
dollars,  without  leaving  any  balance  due  one  way  or 
the  other.  A stronger  illustration  than  this  even,  is  to 
be  found  in  the  operation  of  our  whaling  ships.  A 
vessel  with  a cargo  consisting  of  nothing  but  provi- 
sions sufficient  to  feed  a crew  for  a voyage,  and  as 
many  staves,  hoops,  and  headings,  as  will  make  casks 
enough  to  hold  a cargo  of  oil,  clears  out  at  New  Bed- 
ford for  the  South  seas.  The  custom  house  books 
show  an  export  of  ten  thousand  dollars,  perhaps,  and 
when  the  ship  returns  with  a cargo  of  oil,  they  give 
us  an  import  of  fifty  thousand  doUars,  thus  showing 


CURRENCY  AND  BANKING. 


23 


what  the  superficial  reasoners  above  referred  to  would 
call  a balance  of  trade  against  the  country  of  forty 
thousand  dollars,  but  which  is  a clear  evidence  of  a 
gain  to  the  owners  and  crew,  and  consequently  to  the 
country. 

But  even  if  the  custom  house  books  were  to  fur- 
nish accurate  statements  of  the  nett  proceeds  of  the 
sales  of  the  cargoes  exported,  as  well  as  of  the  foreign 
cost  of  the  homeward  cargoes,  they  would  not  be  suf- 
ficient to  enable  us  to  form  a correct  estimate  of  the 
real  balance  of  trade.  Debits  and  credits  are  created 
in  the  foreign  trade  of  every  country,  which  never 
appear  on  the  custom  house  books.  Specie  is  im- 
ported and  exported  by  emigrants  and  passengers  in 
their  trunks,  or  secretly  shipped  by  merchants  to  avoid 
penalties  or  odium,  or,  exposure  of  their  operations. 
Goods  are  smuggled,  and  others  are  purchased  with 
funds  earned  by  vessels  abroad,  engaged  in  the  carry- 
ing trade,  and  thereby  augment  the  imports,  whilst 
ships  are  frequently  sold  abroad,  and  thereby  aug- 
ment the  exports,  l^arge  amounts  of  property  are 
also  exported  from  some  countries  for  which  no  pro- 
ceeds are  to  return,  or  at  least,  to  return  at  an  early 
day,  such  as  happens  in  the  case  of  foreign  subsidies, 
the  maintenance  of  troops  and  navies  abroad,  the 
transmission  of  revenues  to  non-resident  capitalists, 
and  funds  for  the  expenses  of  travellers  in  foreign 
countries.  To  these  may  be  added  losses  at  sea,  or  by 
fires  abroad,  the  bankruptcy  of  the  persons  to  whom 
the  exported  commodities  are  sold,  and  investments 
in  foreign  loans  and  joint-stock  companies.  In  most 
of  these  cases  property  of  some  kind  or  other  is  sent 
abroad  which  appears  on  the  custom  house  books 
amongst  the  exports;  and,  although  in  many  of  them 
the  actual  transmission  for  these  specific  objects  may 
be  in  the  form  of  bills  of  exchange,  yet  it  is  manifest, 
that  these  bills  could  only  be  drawn  upon  shipments 
of  property. 

In  the  foregoing  remarks  it  has  been  laid  down  as 
an  axiom,  that  the  price  of  bills  of  exchange  is  deter- 


24 


A TREATISE  ON 


mined  by  the  balance  of  trade.  Strictly  speaking, 
however,  this  is  not  always  the  case,  for  this  balance 
is  liable  to  be  modified  by  what  is  called  the  balance 
of  payments;  and  in  truth  this  latter  principle  it  is 
which  regulates  the  daily  rate  of  the  exchanges.  If 
all  the  merchandise  exported  and  imported  was  to  be 
immediately  paid  for  at  the  time  of  its  changing 
hands,  the  balance  of  trade  and  the  balance  of  pay- 
ments would  be  identical.  But,  in  the  intercourse 
between  nations  we  know  that  this  is  not  always  the 
case,  and  that  circumstances  occur  to  prevent  the 
immediate  influence  of  the  balance  between  imports 
and  exports  from  acting  directly  upon  the  exchanges. 
Amongst  these  circumstances  are  the  following: — 

1.  Where  the  imported  articles  are  bought  on  a 
credit,  and  are  to  be  paid  for  at  a distant  time,  Avhilst 
the  exported  articles  are  sold  for  cash,  or  vice  versa. 

2.  Where  in  the  case  of  both  imports  and  exports 
the  sale  is  on  credit,  but  the  credits  are  not  of  the 
same  length. 

3.  Where  the  articles  shipped  abroad  from  one  of 
the  countries  should  not  meet  with  a ready  sale,  and 
should  be  kept  on  hand  for  a length  of  time  without 
being  drawn  upon,  whilst  on  the  other  side  a prompt 
sale  is  made,  and  bills  drawn  for  the  proceeds. 

In  either  of  these  cases,  the  operation  of  the  balance 
of  payments  on  the  exchanges  might  be  such  as  not 
only  to  neutralise  for  a time  the  operation  of  the 
balance  of  trade,  but  to  turn  the  exchanges  against 
the  country  which  had  the  balance  of  trade  in  its 
favor.  A case  in  point  can  readily  be  referred  to. 

If  an  account  current  were  to  be  made  out  of  the 
past  state  of  debits  and  credits  between  the  United 
States  and  Great  Britain,  it  would  no  doubt  be  found, 
that  from  the  date  of  planting  the  first  British  colony 
in  this  hemisphere,  we  have  owed  a balance  of  trade 
that  has  never  been  discharged,  and  which  at  times 
may  have  amounted  to  a hundred  millions  of  dollars 
or  more;  and  yet,  owing  to  the  credit  that  has  been 
extended  to  us,  by  which  the  pay-day  has  been  de- 


CURRENCY  AND  BANKING. 


25 


ferredjthe  exchange  has  not  always  been  against  us,hut 
has,  on  the  contrary,  been  so  controlled  by  the  balance 
of  payments  as  frequently  to  have  been  in  our  favor.* 


CHAPTER  V. 

ON  THE  PRINCIPLES  OF  EXCHANGE. 

Bills  of  exchange  are  those  commercial  instru- 
ments by  which  a merchant  in  one  country  or  place 
directs  money  which  is  subject  to  his  control  in 
another  country  or  place  to  be  paid  over  to  a third 
party.  In  the  commercial  transactions  of  every  na- 
tion, some  of  the  merchants  become  indebted  to  other 
merchants  in  foreign  countries  for  commodities  pur- 
chased there  upon  credit,  whilst  some  others  have 
funds  in  those  foreign  countries  arising  from  the  sale 
of  cargoes  disposed  of  there.  If  bills  of  exchange  did 
not  exist,  the  debtor  class  of  these  merchants  would 
be  obliged  to  incur  the  expense  and  risk  of  transport- 
ing coin  or  bullion  to  foreign  countries  in  discharge 
of  their  debts,  and  the  creditor  class  would  also  be 
obliged  to  incur  the  same  expense  and  risk  in  import- 
ing coin  or  bullion  in  payment  of  their  cargoes  sold 
abroad.  By  this  double  transmission,  the  merchants, 
and  consequently  the  nations  to  which  they  belonged, 
would  be  losers  to  an  amount  equal  to  all  the  ex- 
penses and  risks  so  incurred,  together  with  interest 
on  their  capitals  for  the  time  they  were  out  of  their 
reach.  Nor  could  this  be  avoided  unless  the  im- 
porters and  exporters  were  always  the  same  identical 
individuals,  in  which  case  the  merchandise  purchased 

* For  a table  of  Imports  and  Exports  of  the  United  States 
from  1789  to  1839,  see  Appendix  F. 

3 


26 


A TREATISE  ON 


abroad  would  be  paid  for  by  the  proceeds  of  the 
merchandise  sold.  By  the  operation,  then,  of  bills 
of  exchange,  the  necessity  of  this  double  transmission 
is  entirely  avoided,  and  the  funds  abroad,  instead  of 
being  sent  home,  are  transferred  to  those  who  have 
debts  to  pay  abroad,  and  who  are  thus  exempted 
from  the  expense  and  risk  of  sending  coin  or  bullion 
in  payment  of  their  debts. 

But  this  benefit,  in  which  the  whole  nation  partici- 
pates, is  not  limited  to  the  mere  application  of  funds 
in  any  given  place  to  the  payment  of  a debt  due  in 
that  place.  It  matters  not  whether  the  fund  and  debt 
both  stand  on  the  books  of  merchants  at  the  same 
place,  or  whether  the  debt  be  due  at  Manchester  and 
the  fund  be  at  Paris.  The  magic  power  of  bills  of 
exchange  transfers  the  payer  and  receiver  both  to 
London,  the  great  seat  and  centre  of  British  and  in- 
deed of  European  commercial  operations. 

But  the  merchants  who  make  remittances  of  bills 
of  exchange  to  foreign  countries,  to  pay  for  merchan- 
dise purchased  there,  do  not,  it  is  manifest,  procure 
those  bills  of  exchange  for  nothing.  They  must  pur- 
chase them  from  those  who  have  funds  abroad  to 
draw  for,  and  in  doing  this  they  will  endeavor  to 
procure  them  at  as  cheap  a rate  as  they  can.  It  is, 
on  the  other  hand,  the  interest  of  those  who  have  bills 
for  sale,  to  secure  the  highest  price  for  them  they 
can,  and  it  is  this  competition  between  buyer  and 
seller  that  determines  the  market  price^  which,  like 
the  market  price  of  commodities,  must  always  depend 
upon  the  proportion  which  the  supply  bears  to  the 
demand.  If  bills  of  exchange  are  scarce,  their  price 
will  be  high.  If  they  are  plenty,  their  price  will  be 
low.  There  is,  however,  one  peculiarity  belonging 
to  a bill  of  exchange,  which  is  not  common  to  any 
commodity,  and  which  ought  always  to  be  kept  in 
mind  in  discussing  this  subject.  It  is,  that  if  it  can- 
not be  sold  at  a price  that  will  suit  its  owner,  he  has 
it  in  his  power  to  avoid  the  necessity  of  a sale  at 
great  loss  by  importing  his  funds  in  coin;  and  if  it 


CURRENCY  AND  BANKING. 


21 


cannot  be  purchased  at  a price  that  will  suit  a pur- 
chaser, the  latter  can  avoid  the  necessity  of  a disad- 
vantageous purchase  by  exporting  coin  in  payment 
of  his  debt.  The  existence  of  this  peculiarity  places 
a limit  upon  the  fluctuations  in  the  rate  of  exchange, 
which  cannot  for  any  long  period  together  fall  and 
remain  below  par,  or  rise  and  remain  above  par,  to  a 
greater  extent  than  to  an  amount  equivalent  to  the 
expense  of  transporting  the  precious  metals  from  the 
debtor  country  to  the  creditor  country.  For,  if  a 
merchant  owes  a debt  abroad,  and  cannot  procure  a 
bill  of  exchange  at  an  advance  above  par  equal  to  the 
freight,  insurance,  commission,  and  brokerage,  and 
to  the  value  which  he  attaches  to  that  certainty  of 
punctuality  in  the  fulfilment  of  his  engagement 
abroad,  which  a set  of  bills  of  undoubted  credit, 
sent  by  two  or  three  different  vessels  afTords,  but 
which  a shipment  of  coin  cannot  always  furnish,  how 
solvent  and  prompt  soever  might  be  the  underwriters 
in  settling  in  case  of  loss,  he  will  unquestionably 
transmit  coin  as  being  the  most  economical  mode  of 
making  a remittance."^  And  so,  on  the  other  hand, 
the  drawer  of  a bill,  if  he  cannot  sell  at  a price  which 
will  yield  him  as  much  money  as  the  importation  of 
coin  would  do,  taking  into  the  account,  besides  the 
charges  of  importation,  the  interest  for  the  time  he 
must  wait  before  his  money  can  arrive,  and  if  money 
be  scarce,  the  inconvenience  or  loss  he  would  sustain 
by  the  delay,  he  will  undoubtedly  order  his  funds  to 
be  shipped  to  him  in  coin,  as  the  most  advantageous 
mode  of  getting  them  into  his  possession. 

Of  the  correctness  of  these  positions  there  cannot 

* Specie  was  shipped  from  New  York  to  England,  at  a loss, 
in  October,  1839,  in  preference  to  bills  at  par,  owing  to  the  ap- 
prehended difficulty  of  getting  them  discounted  under  the  pres- 
sure of  the  London  money  market.  Other  shipments  were 
made,  at  the  same  time,  of  specie,  under  the  impression  that 
the  Bank  of  England  was  about  to  stop  cash  payments,  in  which 
event,  the  specie  would  have  commanded  a premium  in  London. 
The  cost  of  freight  and  insurance  on  specie  from  the  United 
States  to  Europe,  may  be  computed  at  one  per  cent. 


28 


A TREATISE  ON 


be  a doubt,  and  whenever  the  market  price  of  ex- 
change differs  from  these  rates,  it  must  have  its  cause 
in  one  of  the  following  circumstances. 

If  the  exchange  be  ahove^  it  must  either  be  that  the 
merchants  who  have  remittances  to  make  are  igno- 
rant of  their  business,  and  therefore  pay  more  for  a 
bill  than  it  is  worth,  or  that  small  profits  are  not 
worth  their  attention,  or  that  there  is  a penalty  or  a 
degree  of  odium  attached  to  the  exportation  of  coin 
which  they  are  not  prepared  to  encounter,  or  that  the 
punctuality  which  is  expected  of  them  by  their  cor- 
respondents abroad  is  of  a character  that  would  not 
justify  the  hazard  of  a miscarriage  by  a single  ship. 

If  the  exchange  be  below,  it  must  be  because  the 
owner  of  the  funds  abroad  cannot  afford  to  wait  the 
time  requisite  for  the  transmission  of  the  coin,  or 
because  in  the  actual  state  of  the  money  market, 
money  is  worth  to  him  more  than  the  ordinary  inter- 
est, or  because  there  exists  a penalty  or  a degree  of 
odium  attached  to  the  exportation  of  coin  in  the  coun- 
try from  which  his  fund  is  to  be  drawn. 

It  must,  however,  be  remarked,  that  it  sometimes 
happens  that  bills  are  sold  below  the  limits  here  de- 
signated in  the  following  cases,  viz: 

1.  Where  the  commanders  of  ships  of  war  on  for- 
eign stations  have  occasion  to  draw  bills  upon  their 
goverament,  at  ports  of  limited  trade,  or  at  which  the 
course  of  trade  does  not  call  for  such  bills.  I have 
known  a bill  on  the  navy  department  drawn  at  a 
port  in  South  America  to  be  sold  at  twelve  per  cent, 
below  the  true  par. 

2.  Where  masters  of  vessels  and  supercargoes,  at 
such  ports,  have  not  merchandise  enough  to  fill  up 
their  vessels,  and  on  that  account  find  it  for  their  in- 
terest to  sell  bills  at  a great  discount,  for  the  purpose 
of  buying  bulky  commodities  to  bring  home,  and 
thereby  earn  a freight  more  than  equivalent  to  the 
loss  sustained  on  the  bills. 

3.  Where  masters  of  vessels  enter  such  ports  in  dis- 


CURRENCY  AND  BANKING. 


29 


tress,  and  are  obliged  to  draw  bills  upon  their  owners 
for  necessary  repairs. 

In  wealthy  countries,  however,  where  bankers  are 
prepared  with  large  capitals  devoted  to  speculations  in 
billsof  exchange, great  fluctuations  from  the  par  are  not 
likely  to  take  place,  inasmuch  as  bills  can  always  be 
bought  from  or  sold  to  them,  by  allowing  a small  profit 
beyond  the  expenses  of  exporting  or  importing  coin. 
The  trade  of  a banker  in  Europe  is  to  study  the  ex- 
changes not  only  between  the  place  at  which  he  resides 
and  all  other  places,  but  also  between  all  those  places 
and  each  other,  by  which  means  he  is  generally  en- 
abled, by  a combination  of  operations,  by  selling  bills 
on  one  place  and  by  buying  them  on  another,  not 
only  to  raise  the  fund  with  which  he  deals,  but  to 
realise  a profit.  Thus,  for  instance,  if  he  reside  at 
London,  and  can  sell  a bill  on  Hamburgh  at  half  per 
cent,  premium,  and  buy  one  on  Paris  at  half  per  cent, 
discount,  and  with  the  latter  buy  one  through  his 
correspondent  at  Paris  on  Hamburgh  at  par,  he  will 
have  realised  one  per  cent,  by  the  transaction,  with- 
out the  employment  of  any  capital;  the  bill  remitted 
from  Paris  to  Hamburgh  arriving  in  time  to  meet  the 
bill  drawn  upon  his  correspondent  at  the  latter  place. 

Having  in  the  foregoing  remarks  spoken  of  the  par 
of  exchange,  it  is  proper  that  the  meaning  of  that  term 
should  be  explained. 

Exchange  is  an  operation,  which,  strictly  speaking, 
has  relation  only  to  the  precious  metals,  and  every 
bill  of  exchange  is  in  reality  a mere  order  for  the  de- 
livery, on  a certain  day,  of  a given  quantity  of  gold 
or  silver.  Exchange  is  at  par  or  equality,  when  a 
merchant  in  one  country  can  purchase  with  an  ounce 
of  pure  gold,  or  an  ounce  of  pure  silver,  a bill  at  sight 
upon  a foreign  country,  which  will  there  put  him  in 
possession  of  an  ounce  of  pure  gold  or  an  ounce  of 
pure  silver,  and  the  coins  of  full  weight  of  the  two 
countries  which  are  the  respective  equivalents  of  an 
ounce  of  pure  gold  or  an  ounce  of  pure  silver,  will 
3^ 


30 


A TREATISE  ON 


express  that  par.  This  is  an  axiom  in  political  econo- 
my, and  should  never  be  lost  sight  of,  whatever  ap- 
pearances to  the  contrary  may  at  times  be  presented. 
Exchange  is  above  par  when  a greater  quantity  is  re- 
quired for  the  purchase  of  a bill  that  will  command  an 
ounce  of  pure  gold  or  pure  silver;  and  it  is  below  par 
when  a less  quantity  is  required.  Now,  if  all  the  tra- 
ding nations  of  the  world  were  to  use  only  one  of 
those  metals  as  their  currency,  and  if  their  coins  were 
of  the  same  standard  as  to  purity,  and  of  the  full  mint 
weight,  the  science  of  exchange  would  be  as  simple  as 
the  plainest  calculations  in  arithmetic.  But  this  not 
being  the  case,  each  nation  having  its  own  standard 
of  fineness,  and  its  own  particular  coins,  some  having 
one  metal  and  some  the  other,  and  some  both,  to  con- 
stitute their  currencies;  and  the  coins  of  some  coun- 
tries being  worn  by  wear  and  tear  more  than  those 
of  others,  without  being  prohibited  from  passing  by 
tale,  and  there  being  in  some  countries  a seignorage 
charged  on  the  coins,  whilst  in  others  there  is  none, 
the  subject  is  involved  in  an  obscurity  which  very 
few  persons  are  disposed  to  take  the  trouble  to  pene- 
trate, and  indeed  which  very  few  persons  have  the 
means  of  penetrating.  This  has  been  particularly  the 
case  in  reference  to  the  exchange  between  the  United 
States  and  England,  which,  being  for  many  years  past, 
up  to  the  present  day,  quoted  in  all  the  newspapers, 
prices  current,  and  correspondence,  upon  false  princi- 
ples, has  occasioned  a wide-spread  error,  the  origin  of 
which  will  now  be  explained. 

By  an  act  of  congress,  passed  on  the  31st  of  July, 
1789,  it  was  declared,  that  the  British  pound  sterling 
(which,  although  not  at  that  time  a coin,  was  the 
equivalent  of  the  quantity  of  gold  contained  in  a 
guinea,  less  the  one  and  twentieth  part^  the  guinea 
being  twenty-one  shillings)  should  be  taken  as  of  the 
value  of  four  Spanish  silver  dollars  and  fourty-four 
hundredth  parts  of  a dollar  in  estimating  ad  valorem 
duties  upon  British  merchandise  at  our  custom 
houses.  This  estimate  was  founded  upon  the  cir- 


CURRENCY  AND  BANKING. 


31 


cnmstance,  that  at  that  period,  the  Spanish  dollar,  the 
only  coin  of  that  denomination  in  circulation  in  the 
United  States,  was  the  well  known  equivalent  in  the 
British  market,  of  four  shillings  and  sixpence  sterling, 
and  very  nearly  such  equivalent  at  the  British  mint.* 
By  another  act  of  congress  of  2d  April,  1792,  esta- 
blishing the  mint,  and  authorising  a coinage  for  the 
United  States,  it  was  provided,  that  there  should  be 
silver  dollars  coined,  each  to  be  of  the  value  of  a 
Spanish  milled  dollar,^^  to  contain  17dwt.  8 grains  of 
standard  silver;  and  that  the  proportion  which  the  gold 
and  silver  coins  should  bear  to  each  other,  should  be 
that  of  1 to  15,lhat  is,  that  one  ounce  of  pure  gold  should 
be  the  equivalent  of  fifteen  ounces  of  pure  silver.t 
But  there  is  no  natural  proportion  between  gold 
and  silver,  as  has  been  observed  on  a former  occasion, 
any  more  than  there  is  between  lead  and  iron,  and  it 
is  therefore  very  manifest  that  no  law  can  permanently 
fix  a par  of  exchange  between  them.  When  any 
change  in  their  relative  value  takes  place  in  the  mar- 
ket of  the  trading  world,  whether  it  be  by  an  in- 


* The  mint  price  of  silver  at  that  period,  as  well  as  at  the 
present,  was  5s.  2d,  per  ounce.  The  weight  of  the  dollar  was 
17dwt.  8 grains,  but  somewhat  inferior  in  quality  to  the  British 
standard,  so  that  if  sent  to  the  mint,  it  would  have  produced 
about  4s.  5Jc?.  As  an  exportable  foreign  coin,  it  was  probably 
worth  in  the  market  an  additional  Jc?.,  there  being  at  that  time  a 
prohibition  against  the  exportation  of  British  coins. 

f The  adoption  of  this  proportion  was  probably  the  result  of 
a sort  of  average,  founded  upon  the  comparison  of  the  mint 
proportions  of  several  different  countries.  What  they  were  at 
that  precise  date,  I cannot  say,  but,  by  some  tables  that  I have 
seen,  it  appears  that  the  mint  proportions  in  1810,  at  the  places 
named,  were  as  follows,  and  probably  had  been  so  for  a long 
period. 

‘ “ Venice, 

London, 

Bengal, 

Madras, 

Bombay, 

China, 

Amsterdam,  no  regulation:  market  rate,  about  1 to  14  7-10. 
Hamburgh,  no  regulation:  market  rate,  about  1 to  14  83-100. 


Paris,  1 to  15.65-129. 
Cadiz,  1 to  16. 

Lisbon,  1 to  15.7-10. 
Naples,  1 to  14.5-10. 
Genoa,  1 to  14.53-100. 
Leghorn,  1 to  14.53-100. 


1 to  14  88-100. 
1 to  15  13-62 
1 to  14  861. 

1 to  13  872. 

1 to  15. 

1 to  14  296. 


32 


A TREATISE  ON 


creased  or  diminished  supply,  of  one  or  the  other 
metal,  or,  by  an  increased  or  diminished  demand  for 
one  or  the  other,  the  par  becomes  changed.  This 
event  did  in  reality  take  place,  and  in  process  of  time, 
an  ounce  of  gold,  as  has  been  already  stated,  became 
gradually  worth  more  than  fifteen  ounces  of  silver, 
and  finally  reached  the  proportion  of  one  to  sixteen. 
With  this  gradual  change  in  the  relative  value  of 
gold  and  silver,  the  silver  dollar  ceased  to  be  the 
equivalent  of  four  shillings  and  sixpence  sterling,  and 
consequently  the  pound  sterling  became  the  equiva- 
lent of  more  than  four  dollars  and  fourty-four  hun- 
dredth parts  of  a dollar,  for  the  simple  reason,  that 
any  person  who  possessed  the  quantity  of  gold  repre- 
sented by  the  pound  sterling  before  the  coinage  of 
the  sovereign,  and  now  actually  contained  in  that  coin, 
could  obtain  for  it  more  than  four  dollars  and  forty- four 
hundredth  parts  of  a dollar  in  silver.  But  the  mercan- 
tile usage  did  not  conform  to  this  change.  The  mer- 
chants adhered  to  the  old  par,  as  if  a pound  sterling  was 
the  equivalent  of  four  dollars  and  forty-four  cents  by 
some  unchangeable  law  of  nature,  and  for  many 
years  continued  to  ascribe  the  nominal  premium  on 
sterling  bills  of  exchange,  which  was  the  mere  expo- 
nent of  this  change  in  the  relative  value  of  gold  and 
silver,  to  the  influence  of  the  balance  of  trade.  The 
delusion  was  partly  removed  by  the  act  of  congress 
of  14th  July,  1832,  which  raised  the  value  of  the 
pound  sterling  for  the  calculation  of  ad  valorem 
duties  at  the  custom  house  to  @4.80,  and  by  two  sub- 
sequent acts,  one  of  28th  June,  1834,  by  which  the 
British  sovereign  was  made  the  equivalent  in  Ameri- 
can gold  coins  of  @4.  87.075+,  and  one  of  18th  Janu- 
ary, 1837,  by  which  it  was  made  the  equivalent  of 
@4.86.65-1-,  which  is  now  the  true  par  on  London^ 
corresponding  within  a very  small  fraction  to  9i  per 
cent,  premium  on  the  old  computed  par.*  I say 

* The  sign  at  the  end  of  the  figures  in  this  sentence,  and 
wherever  it  occurs,  denotes  that  there  is  a fraction  still  remaining. 


CURRENCY  AND  BANKING. 


33 


partly  removed/^  because,  strange  as  it  may  appear, 
there  are  thousands  of  persons  at  this  very  day,  who 
have  no  other  belief  on  this  subject,  than  that  the 
nominal  premium  quoted  on  exchange,  is  a real  ad- 
vance which  takes  so  much  money  out  of  their 
pockets.  To  remove,  however,  the  vestiges  of  this 
deep  rooted  error,  the  Chamber  of  Commerce  of 
New  York,  early  in  the  year  1839,  recommended  to 
the  merchants  of  that  city,  to  quote  the  exchange  on 
England  in  dollars  and  cents  for  the  pound  sterling, 
instead  of  designating  the  per  centage  above  or 
below  par;  a recommendation  which  was  soon  after 
followed  up  by  the  Chambers  of  Commerce  of  Phila- 
delphia and  other  places,  and  will  perhaps  in  time  be 
generally  adopted.^ 

* Since  the  appearance  of  the  first  edition  of  this  book,  the 
author  has  been  politely  furnished,  by  Joseph  Perry  Esq.,  of 
the  General  Post  Office  at  Washington,  with  a very  detailed 
statement  of  the  value  of  the  sovereign  in  American  currency 
under  the  different  acts  of  congress,  ascertained  by  algebraical 
calculations,  from  which  it  appears,  that  the  par  of  the  pound 
sterling,  was 

By  the  act  of  2d  April,  1792 — ^4.5657-|-  which  was  per 
cent  above  the  computed  par  of  §4.4444. 

By  the  act  of  28th  June,  1834,  commonly  called  the  gold 
bill — §4.87075-1-  which  was  9.591875-j-  or  within  a small  frac- 
tion of  9|  per  cent,  above  the  same  computed  par,  and 

By  the  act  of  18th  January,  1837,  now  in  force — §4.8665-4- 
which  is  9.496-1-  or  very  nearly  9|  per  cent,  above  the  same 
computed  par. 

The  British  mint  price  of  standard  gold  is  £3.  17s.  \0\d,  per 
oz.  and  consequently  the  weight  of  the  sovereign,  the  coin  of 
one  pound  sterling  is  123.2744-|-  grains.  The  British  standard 
of  gold  is,  22  carats  fine,  that  is,  1 1 parts  pure  metal  and  1 part 
alloy,  and  consequently  the  quantity  of  pure  gold  contained  in 
a sovereign  is  113.001  grains. 

The  standard  of  gold  in  the  United  States  by  the  existing 
act  of  18th  January,  1837,  is  21.60  carats  fine,  that  is  9 parts 
pure  metal  and  1 part  alloy,  and  the  weight  of  the  eagle,  the 
coin  of  ten  dollars,  is  258  grains  standard,  or  232.2  grains  pure 
gold. 

Now  as  the  sovereign  of  full  weight  and  standard  puri- 
ty contains  precisely  as  much  pure  gold  as  is  contained  in 


34 


A TREATISE  ON 


4.866563+  parts  of  an  eagfle,  it  follows  that  the  true  par  of  the 
pound  sterling  is  ®4. 866563+  that  is  ^4.86  and  a fraction  of 
nearly  f of  a cent. 

But  it  appears  by  the  Report  of  the  Director  of  the  Mint  of 
the  United  States  of  March  19,  1839,  that  by  the  latest  assays 
made  by  him  of  the  British  gold  coins,  their  standard  does  not 
exceed  915^  thousandths,  whereas  by  the  British  mint  regula- 
tions, it  ought  to  he  916§  thousandths,  which  is  equal  to  22 
carats.  Taking  this  then  as  the  true  standard  of  the  sovereign, 
it  contains  when  of  full  weight  only  112.8577  grains  pure  gold, 
and  consequently  the  par  of  the  pound  sterling  thus  found,  is 
but  g4. 860366,  that  is  g4.86  and  a very  small  fraction,  equal  to 
9.35+  or  92^^  per  cent  above  the  old  computed  par. 

But  this  is  not  all.  The  act  of  congress  of  June  28,  1834,  en- 
titled “An  act  regulating  the  value  of  certain  foreign  gold  coins 
within  the  United  States,”  declares  that  the  sovereign  when  of 
standard  purity,  shall  be  a legal  tender,  at  the  rate  of  94^^  cents 
per  pennyweight.  By  this  act  which  has  never  been  altered,  a 
sovereign  of  full  weight  and  of  the  legal  standard  is  worth  in 
our  gold  currency  the  same  as  by  the  gold  bill  of  1834,  above 
referred  to,  that  is  §4.87  and  a fraction,  thus  presenting  the 
anomaly  of  foreign  coins  having  a higher  value  attached  to 
them  than  their  intrinsic  worth  in  the  coins  of  the  country. 

It  so  happens,  however,  that  many  of  the  sovereigns  that 
reach  this  country,  have  been  somewhat  worn,  and  on  this  ac- 
count, no  doubt,  in  connection  with  the  deficiency  of  purity 
above  referred  to,  they  have  been  received  and  paid  out  by  the 
banks  at  §4.85. 

For  the  benefit  of  practical  men,  the  following  documents  are 
submitted. 

Present  value  of  the  pound  sterling  in  dollars  and 
CENTS  AT  different  RATES  OF  EXCHANGE  ON  THE  COMPUTED 
PAR  OF  §4.4444. 


RATE. 

Above 

par. 

RATE. 

Above 

par. 

Par.  

4.4444 

3 

T •••*•• 

4.5666 

1 

4 

3 per  cent 

i 

1 

8 

T 

4.4777 

i 

1 per  cent 

3 

T 

1 

2T  

4.5000 

4 per  cent 

i 

i 

3 

T 

i 

2 per  cent 

3 

4 

1 

T 

5 per  cent 

i 

1 

^ 

CURRENCY  AND  BANKING. 


35 


RATE. 

Above 

par. 

RATE. 

A bo  ve 
par. 

i 

1 

¥ 

3 

T 

2 •••••• 

6 per  cent 

3 

¥ 

4.8777 

i 

10  per  cent 

i 

4.7333 

i 

3 

T 

4.7444 

1 

2 

7 per  cent 

3 

¥ 

4.9222 

i 

4.7666 

11  per  cent 

i — • . 

4.7777 

1 

¥ 

3 

*4  

2 

8 per  cent 

3 

¥ 

4.9666 

i 

12  per  cent 

4.9777 

JL  

i 

¥ 

§ 

T 

4 ...... 

9 per  cent 

5 

¥ 

The  Par  of  Exchange  on  Foreign  Countries. 

Extract  from  the  Report  of  the  Secretary  of  the  Treasury  of  28/A 
May^  1838,  on  Exchanges, 

The  quotations  of  exchange  on  France,  are  so  many  francs 
and  centimes,  {or  hundredth  parts  of  a franc,)  payable  in  France 
for  a dollar  paid  here.  According  to  the  regulations  of  the  French 
mint,  the  silver  franc  should  contain  69.453  troy  grains  of  pure 
silver,  equivalent  to  18.708-1000  cents  in  silver  currency  of 
the  United  States,  {not  quite  18J  cents,)  The  quantity  of  pure 
silver  in  an  American  dollar,  is  equal  to  that  in  5 francs  34.534- 
1000  centimes.  But  as  foreign  coins  are  not  a legal  tender  in 
France,  and  as  a seignorage  of  about  IJ  per  cent  is  charged 
on  silver  coinage  at  the  French  mint,  American  dollars,  when 
sold  as  bullion  in  France,  are  said  to  bring  on  an  average  not 
more  than  5 francs  26.25-1000  centimes.  This  is,  by  some 
writers  assumed  as  the  par  of  exchange  on  France.  Other 
writers  assume  5 francs  34  centimes  as  about  par. 

The  quotations  of  exchange  on  Holland,  are  so  many  cents  a 
guilder;  on  Hamburgh,  so  many  cents  a mark  banco;  and  on 
Bremen,  so  many  cents  a rix  dollar. 

The  exact  value  of  the  guilder  of  Holland,  is  39.97-100  cents 
of  United  States  silver  currency;  but  40  cents  are  usually  as^ 
sumed  as  the  par  of  exchange. 

The  mark  banco  of  Hamburg  is  a money  of  account,  equal  to 
35.144-1000  cents  United  States  currency. 

The  rix  dollar  of  Bremen  is  a money  of  account,  equal  to 
80  cents  and  a very  small  fraction  United  States  currency. 


36 


A TREATISE  ON 


From  Tate’s  Cambist. 

The  par  of  exchange  between  London  and 

is  25  francs,  22  centimes  per  £>  stg»  in  gold, 

is  25  “ 57  “ “ in  silver, 

is  12  guilders,  09  centimes  “ in  gold, 

is  11  “ 97  “ “ in  silver, 

is  13  m’cs  banco,  lOJ  schillings,  “ 

is  609i  Rix  dollars  for  100  it  stg,  in  gold. 


CHAPTER  VI. 

ON  THE  STEADINESS  OF  TRADE  IN  COUNTRIES 
EMPLOYING  A METALLIC  CURRENCY. 

If  the  principles  laid  down  in  the  preceding  chap- 
ters be  sound,  as  it  is  believed  they  are,  it  must 
necessarily  follow  that  the  operations  of  commerce  in 
countries  employing  a metallic  curency,  are  as  regu- 
lar and  as  little  liable  to  fluctuations  as  the  nature  of 
things  will  admit,  and  more  than  this  can  no  where 
be  looked  for.  That  there  will  be  occasional  over- 
trading and  over-speculation  wherever  there  is  credit, 
is  too  self-evident  to  require  proof,  and  hence  no 
country  in  which  credit  exists,  can  be  entirely  exempt 
from  individual  bankruptcies.  Foreign  wars,  domes- 
tic disturbances,  extensive  conflagrations,  storms  and 
hurricanes,  the  failure  of  crops,  the  insolvency  of 
foreign  debtors,  and  a variety  of  other  causes,  may 
produce  individual  or  even  extensive  commercial 
embarrassment.  Too  much  credit  may  even  lead 
incautious  men  into  extravagance  of  expenditure, 
which  may  bring  on  their  ruin,  but  in  none  of  these 
cases  is  the  currency  chargeable  with  the  catastrophe. 
The  mischief,  whatever  it  may  be,  can  only  be 
ascribed  to  the  operations  of  credit;  but  as  credit, 
when  properly  regulated,  is  far  more  influential  in 


Pans, 

Amsterdam, 

Hamburgh, 

Bremen 


CURRENCY  AND  BANKING. 


37 


producing  good  than  evil,  as  will  be  shown  hereafter, 
it  is  not  to  be  annihilated  on  account  of  the  misfor- 
tunes or  imprudence  of  a comparatively  few  indi- 
viduals. 

Such  being  the  theory  of  this  branch  of  my  subject, 

I have  the  satisfaction  to  state  in  regard  to  the  prac- 
tice under  it,  upon  the  testimony  of  a respectable 
American  merchant,  who  resided  and  carried  on  ex- 
tensive operations  for  near  twenty  years  at  Gibraltar, 
where  there  has  never  been  any  but  a metallic  cur- 
rency, that  he  never  knew  during  that  whole  period, 
such  a thing  as  a general  pressure  for  money.  He 
has  known  individuals  fail  from  incautious  specula- 
tions, or  indiscreet  advances,  or  expensive  living;  but 
he  never  saw  a time  that  money  was  not  readily  ob- 
tainable, at  the  ordinary  rate  of  interest,  by  any  mer- 
chant in  good  credit.  He  assured  me,  that  no  such 
thing  as  a general  rise  or  fall  in  the  prices  of  commo- 
dities, or  property  was  known  there;  and  that  so 
satisfied  were  the  inhabitants  of  the  advantages  they 
enjoyed  from  a metallic  currency,  although  attended 
by  the  inconvenience  of  keeping  in  iron  chests,  and 
of  counting  large  sums  in  Spanish  dollars  and  doub- 
loons, that  several  attempts  to  establish  a bank  there 
were  put  down  by  almost  common  consent. 

Upon  this  same  subject,  in  reference  to  the  city  of 
Havanna,  more  satisfactory  evidence  still,  because  in 
an  official  form,  and  more  in  detail,  can  be  adduced. 
N.  P.  Trist,  Esq.,  consul  of  the  United  States  at  that 
port,  in  a letter  addressed  to  the  secretary  of  the 
treasury  under  date  of  19th  October,  1838,  and  laid 
before  the  senate  on  the  21st  of  January  following, 
annexed  to  a report  from  the  committee  of  finance, 
communicated  many  valuable  particulars  in  reference 
to  the  practical  working  of  a metallic  currency. 

After  describing  the  trade  and  importance  of 'Cuba, 
Mr.  Trist  employs  the  following  language: — 

These  are  tolerably  sure  evidences  of  a state  of 
active  industry  and  prosperous  credit.  Nor  are  they 
4 


38 


A TREATISE  ON 


less  steady  than  active.  They  exhibit  no  alterations 
of  feverish  excitement  and  prostration;  now  rising  to 
the  energy  of  delirium,  now  sinking  to  correspondent 
enervation.  The  sudden  stoppage  of  the  current 
business  in  all,  or  in  any  one  of  its  branches,  is  a 
thing  as  absolutely  unknown  in  this  island  as  the 
freezing  of  one  of  its  rivers;  and  its  inhabitants  pos- 
sess as  little  knowledge  of  the  one  phenomenon  as 
they  do  of  the  other.  Nay,  less:  for  they  not  only 
read  and  hear  of  the  freezing  of  our  waters,  as  they 
do  of  those  monetary  prodigies  in  which  the  streams 
of  industry  and  credit  become  arrested  in  the  same 
way,  and  with  equal  suddenness;  but,  by  means  of 
the  ice  which  our  country  sends  hither,  they  can 
form  a clear  conception  of  the  one  wonder,  and  of  all 
the  horrors  of  navigation  among  its  whirling  and 
crushing  masses,  while  no  such  means  of  knowledge 
can  be  brought  home  to  their  feelings  in  regard  to 
the  other. 

I am  here  indulging  in  no  exaggeration.  It  is 
the  literal  truth;  and  for  the  proof  that  it  is  so,  I refer 
to  the  testimony  of  the  leading  merchants  of  all  na- 
tions established  here,  which  forms  a portion  of  the 
documents  accompanying  this  letter.  It  is  strictly 
and  literally  true,  that  such  a thing  as  a monetary 
convulsion  is  absolutely  unknown  in  any  part  of  this 
island,  which  covers  an  area  of  about  forty-three 
thousand  square  miles;  has  a line  of  sea-coast  of 
about  sixteen  hundred  mules;  has  nine  ports  open  to 
foreign  commerce,  one  of  which  is  ^ a commercial 
city,  second  to  none  in  the  new  world.  New  York 
only  excepted;’  has  a population  amounting  to  about 
one  million  of  souls,  who,  in  the  last  year,  maintained 
a foreign  exporting  and  importing  business  exceeding 
forty-three  millions  of  dollars,  after  paying  taxes  to 
an  amount  which,  in  the  year  1827,  (when  its  export- 
ing and  importing  business  fell  something  short  of 
thirty-two  millions,)  exceeded  fourteen  millions,  and 
the  rate  of  which  has  not  since  decreased;  and  the 


CURRENCY  AND  BANKING. 


39 


government  of  which  is  an  absolute  monarchy,  main- 
tained by  the  bayonet. 

This  is  the  country  the  inhabitants  of  which  ac- 
tually have  not  the  slightest  knowledge  of  what  a 
monetary  convulsion  means;  where  a general  or  an 
extensive  stoppage  of  its  commercial  movement, 
(using  the  words  in  their  most  comprehensive  sense, 
embracing  all  branches  of  business,)  not  only  has 
never  spontaneously  occurred,  but  has  never,  for  one 
single  instant,  been  experienced  at  all;  where  the 
utmost  effect  that  any  foreign  disturbing  cause,  how- 
ever terrific  its  ravages  at  home,  has  ever  been  able 
to  produce,  has  been  a momentary  pause — momen- 
tary only^  and  merely  prudential — in  regard  to  the 
particular  branches  of  business,  or  rather  the  particu- 
lar individuals,  intimately  and  directly  connected  with 
the  scene  of  the  earthquake. 

This,  I again  repeat,  is  true  to  the  very  letter. 
The  recent  convulsion,  in  which  the  whole  business 
of  our  country,  from  the  city  of  New  York  to  the 
remotest  village  in  the  west,  exhibited  the  spectacle 
of  chaos  come  again,  was  literally  unfelt  here.  None 
but  the  mercantile  class  knew  that  any  thing  had 
happened;  and  of  that  class,  it  did  not  occasion  a 
moment^s  uneasiness  to  any,  except  those  whose 
stability  depended  upon  the  punctual  fulfilment  of 
engagements  by  merchants  in  the  United  States  or  in 
Great  Britain.  Beyond  these,  and  the  few  others 
who  may  have  depended  upon  credit  facilities  from 
them,  I do  not  believe  that  the  business  of  a single 
man  in  the  island  was  so  much  as  sensibly  slackened 
by  it  for  a single  day,  or  that  a single  individual 
received  or  spent  one  dollar  the  less,  or  so  much  as 
ever  dreamed  that  any  thing  was  the  matter. 

“ For  evidence  upon  this  point,  from  persons  far 
more  competent  to  give  it  than  I can  be,  I again  refer 
to  the  accompanying  documents.  They  afford  proof 
of  the  fact.  To  estimate  the  force  of  that  fact,  it  is 
necessary  to  take  into  consideration  the  extent  and 


40 


A TREATISE  ON 


intimacy  of  the  commercial  connection  between  the 
two  countries.  Of  this  a conception  may  be  con- 
veyed in  a few  words.  Of  the  two  thousand  Jive 
hundred  and  twenty-four  vessels  of  all  nations, 
Spanish  included,  which  entered  the  ports  of  the 
island  from  other  parts  of  the  world,  during  the  last 
year,  one  thousand  three  hundred  and  nineteen 
were  Americans. 

^^Here  then,  are  the  facts.  Here  is  flourishing 
industry,  flourishing  credit;  above  all,  flourishing 
commerce^  if  such  a thing  exists  under  the  sun. 
These  are  facts,  the  reality  of  which  is  beyond  all 
question.^’ 

Not  wishing,  however,  to  rest  his  statements  upon 
his  own  evidence  alone,  Mr.  Trist  addressed  a circu- 
lar to  a number  of  foreign  merchants  of  the  highest 
respectability  residing  in  Havanna,  in  which  he  pro- 
pounded to  them  a number  of  inquiries,  the  answers 
to  five  of  which  he  above  alludes  to  as  the  documents 
accompanying  his  letter. 

From  these  answers  the  following  particulars  are 
gathered: — 

First,  That  the  imports  into  the  Havanna  are 
mostly  on  account  of  the  foreign  shippers,  perhaps  a 
third  or  a fourth  being  on  home  account. 

Second.  That  these  imports  are  mostly  sold  on 
credit,  varying  from  one  to  ten  months,  upon  pro- 
missory notes  without  endorsers,  which  are  paid  at 
maturity  with  great  punctuality. 

Third,  That  the  rate  of  interest  fluctuates  accord- 
ing to  the  season. 

One  of  the  answers  says, — 

“ The  usual  rate  of  interest  for  good  paper  is  | per 
cent,  a month,  and  the  extreme  points  may  be  placed 
at  I to  1 per  cent.;  but  the  latter  rate  is  unusual.^^ 

Another  says, — 

In  spring,  when  the  bulk  of  the  crops  is  shipped, 
it  is  sometimes  difficult  to  get  money  for  notes  at  H 
per  cent.;  and  in  autumn,  when  shipments  are  of 


CURRENCY  AND  BANKING. 


41 


comparatively  small  amount,  and  foreign  exchanges 
high,  the  rate  of  discount  sometimes  fails  to  i per 
cent.^^ 

The  third  says, — 

^^The  discount  varies  in  ordinary  times  between  i 
and  li  per  cent,  per  month.  For  signatures  in  good 
repute,  the  current  rate  scarcely  ever  exceeds  1 per 
cent.’^ 

The  fourth  says, — 

^^The  discount  is  1 per  cent,  a month,  and  fre- 
quently i on  first  rate  paper  of  merchants  or  retailers, 
but  very  often  the  notes  of  planters  cannot  be  cashed 
at  less  than  2 per  cent,  a month. 

The  fifth  says, — 

The  ordinary  discount  upon  good  paper  is  from 
S to  1 per  cent.  I have  sometimes  known  the  dis- 
count in  oiir  market  to  be  I per  cent.,  and  rarely 
above  1^.  It  may  be  said  that  there  are  every  year 
two  rates  of  discount  in  our  market;  the  one  from 
January  to  June,  when  the  rate  is  from  i to  1 per 
cent.,  the  other  from  July  to  December,  when  it  is 
from  I to 

Fourth,  That  at  the  market  rate  of  discount  there 
is  never  any  difficulty  to  obtain  money. 

Fifth,  That  bills  of  exchange  can  always  be  sold 
at  the  current  rate. 

Sixth,  That  no  such  thing  as  a general  scarcity  of 
money  is  known. 

Seventh,  That  individuals  occasionally  fail,  but 
that  such  a thing  as  a general  discredit  may  be  said 
not  to  be  known.  The  only  exceptions  were  in  1836, 
occasioned  by  local  speculation  on  sugars,  and  in 
1829,  when  there  was  an  extensive  failure  of  the 
retail  dealers  in  dry  goods,  who  had  formed  them- 
selves into  companies,  the  individuals  of  which  made 
up  for  each  other’s  deficiencies.  In  this  way  they 
acquired  great  credit,  and  were  enabled  to  make  pur- 
chases with  long  terms  of  credit,  extending  from  six 
to  twelve  months.  The  less  regular  trusted  to  the 

4^ 


42 


A TREATISE  ON 


more,  insomuch  that  the  latter,  after  a series  of  in- 
creasing abuses,  denied  their  liability  for  the  former, 
and  an  almost  general  suspension  of  payments  took 
place  among  them.^^ 

Eighth,  That  the  ordinary  derangements  of  com- 
merce in  foreign  countries  produce  no  effect,  except 
upon  the  parties  immediately  connected  with  it,  as 
drawers  or  endorsers  of  protested  bills.  A violent 
and  general  commercial  crisis,  however,  such  as  that 
which  took  place  in  the  United  States  in  1837,  exer- 
cises a temporary  influence.  That  crisis  was  felt  in 
Cuba,  as  it  was,  in  fact,  almost  over  the  whole  com- 
mercial world,  although  the  answers  differ  in  regard 
to  its  intensity,  one  affirming  that  it  did  not  shake 
credit  and  confidence  to  such  a degree  as  to  stop  the 
current  business  in  those  branches  on  which  it 
weighed  the  most  directly.’^ 


CHAPTER  VII. 

OF  THE  DIFFERENT  KINDS  OF  DEPRECIATION  TO 
WHICH  A METALLIC  CURRENCY  IS  LIABLE. 

In  discussions  upon  a metallic  currency,  the  term 
depreciation  or  diminution  of  value,  is  frequently  em- 
ployed, and  as  it  is  necessary  that  the  reader  should 
be  acquainted  with  the  different  kinds  of  deprecia- 
tion to  which  reference  may  be  had,  they  will  be 
here  pointed  out. 

The  Jirst  is  that  general  and  gradual  diminution  in 
the  value  of  the  precious  metals,  which  has  resulted, 
and  which  may  possibly  hereafter  result,  from  the 
discovery  of  new  mines,  or  from  the  discovery  of 
economical  modes  of  extracting  and  refining  the  ore, 
by  which  the  aggregate  mass  of  gold  and  silver  in  the 


CURRENCY  AND  BANKING. 


43 


commercial  world  has  been,  or  may  be,  augmented 
faster  than  the  demand.  The  most  remarkable  depre- 
ciation resulting  from  this  cause  that  has  ever  taken 
place,  was  that  which  commenced  with  the  discovery 
of  the  mines  of  America  about  the  middle  of  the 
sixteenth  century,  and  which  has  been  generally 
considered  to  have  regularly  continued,  with  some 
occasional  interruptions,  down  to  the  present  period.^ 

The  second  species  of  depreciation  is  that  to  which 
the  metallic  currency  of  a country  may  occasionally 
be  for  a short  time  subject,  by  an  extraordinary  im- 
portation of  coin,  not  in  the  course  of  its  regular  dis- 
tribution throughout  the  commercial  world,  but  by 
some  unusual  event.  A memorable  example  of  this 
species  of  depreciation  occurred  in  the  United  States 
somewhere  about  the  year  1805,  at  which  time  there 
was  war  between  Great  Britain  and  Spain.  The 
Spanish  government,  not  finding  it  easy  to  evade  the 
British  cruisers  in  the  Gulf  of  Mexico,  which  closely 
watched  the  exports  of  coin  from  Vera  Cruz,  made  a 
special  contract  with  the  house  of  Hope  & Co.  of 
Amsterdam,  of  whom  it  had  obtained  a loan,  by  which 
authority  was  furnished  to  that  house  to  receive  in 
Mexico  large  amounts.  In  order  to  procure  this  coin, 
bills  on  Vera  Cruz  were  sold  in  the  United  States  by 
Hope  & Co.  through  their  agent,  David  Parrish, 
upon  terms  favorable  to  the  purchasers,  with  the 
privilege  of  importing  cargoes  of  merchandise  into 
Mexico,  to  a class  of  responsible  merchants,  who 
fitted  out  fast  sailing  vessels,  which  could  elude  the 
British  ships  of  war,  and  by  means  of  that  arrange- 
ment, many  millions  of  Spanish  dollars  found  their 
way  into  the  United  States,  not  called  for  in  the  ordi- 
nary course  of  trade,  and  not  merely  in  transitu  on 
its  way  to  Europe,  for  most  of  it  was  here  exchanged 

* Those  who  are  desirous  of  being  particularly  informed  on 
this  subject,  are  referred  to  Smith’s  Wealth  of  Nations,  Book  I, 
chap,  xi,  Part  III,  where  they  will  find  the  matter  examined 
with  great  care  and  ability. 


44 


A TREATISE  ON 


for  coffee  and  other  merchandise,  and  thus  entering 
for  a time  into  the  circulation  of  the  country,  occa- 
sioned a depreciation  of  the  currency  to  an  extent 
plainly  discernible. 

A third  species  of  depreciation  is  that  which  re- 
sults from  the  wear  and  tear  of  the  coins  of  a coun- 
try,  by  which  they  lose  in  weight,  and  consequently 
in  value.  In  some  countries  this  diminution  in  the 
weight  of  the  coins  has*  been  permitted  to  exist  to 
such  an  extent  before  a new  coinage  has  been  ordered, 
as  materially  to  affect  the  rate  of  exchange,  the  par 
of  which  calls  for  ounce  against  ounce,  and  conse- 
quently in  such  cases,  the  true  par  has  differed  from 
the  nominal  par,  precisely  to  an  extent  equal  to  the 
depreciation. 

A fourth  species  of  depreciation  is  that  which 
arises  from  the  frauds  of  governments,  by  which  their 
coins,  whilst  they  retain  the  same  denomination,  are 
diminished  in  weight  or  in  purity,  or  in  both,  so  as  to 
contain  a less  quantity  of  gold  or  silver  in  them  than 
before,  whilst  they  are  declared  to  be  legal  tenders 
for  the  discharge  of  a debt  for  an  equal  number  of 
pieces,  contracted  before  the  alteration  took  place. 
Many  discreditable  transactions  of  this  species  of  fraud 
might  be  enumerated,  amongst  which  are  the  follow- 
ing:— 

The  successive  frauds  in  France  by  which  the  livre 
or  pound  of  silver  has  been  reduced  to  the  livre  or 
franc,  equivalent  to  less  than  one-fifth  part  of  a Spa- 
nish dollar. 

The  successive  frauds  in  England,  by  which  the 
pound  of  standard  silver,  originally  coined  into  twen- 
ty equal  parts,  called  shillings,  has  been  coined  into 
sixty-six  equal  parts,  also  called  shillings,  of  which 
twenty  are  made  a legal  tender  for  the  payment  of  a 
debt  contracted  at  a time  when  twenty  shillings  con- 
tained a pound  of  silver. 

The  recent  fraud  practised  in  the  United  States  by 
the  act  of  2Sth  June,  1834,  by  which  the  gold  coin 


CURRENCY  AND  BANKING. 


45 


called  the  eagle  was  reduced  in  weight  and  deteri- 
orated in  purity.  Prior  to  that  year  the  eagle  con- 
tained 247i  grains  of  pure  gold.  By  that  act  it  was 
reduced  to  232  grains  of  pure  gold.  Prior  to  that  act 
its  standard  was  twenty-two  carats,  that  is,  eleven 
parts  of  pure  metal  to  one  of  alloy.  By  that  act  its 
standard  was  reduced  to  about  21.58  pure  metal  to 
2.42  of  alloy,  the  two  operations  reducing  its  value 
68  cents,  that  is,  from  ten  dollars  to  nine  dollars  32 
cents,  whilst  it  was  made  a legal  tender  for  all  debts 
contracted  before  the  28th  of  June,  1834,  as  well  as 
for  those  contracted  after  that  date  for  ten  dollars. 
By  the  act  of  18th  January,  1837,  this  fraud  was  slightly 
rectified,  by  augmenting  the  weight  of  pure  gold  in 
the  eagle  to  232^  grains,  as  will  be  seen  in  the  first 
note  to  Chapter  2,  Book  4. 

Changes  in  the  intrinsic  value  of  the  coins  of  a 
country  made  in  the  manner  here  referred  to,  neces- 
sarily show  themselves  in  the  rate  of  the  foreign 
exchanges.  A palpable  example  is  now  before  our 
eyes,  in  the  case  of  the  late  alteration  of  our  gold 
coinage,  by  which  the  par  of  exchange  on  England, 
when  measured  by  gold,  became  altered  to  the  whole 
extent  of  the  diminished  weight  of  pure  metal  in  the 
eagle.  As  for  example:  prior  to  the  28th  June,  1834, 
the  British  sovereign,  which  is  the  metallic  pound 
sterling,  if  coined  at  our  mint,  would  have  produced 
$4,56i  and  a fraction  in  gold  currency,  and  conse- 
quently the  latter  would  have  been  the  true  par  of 
one  pound  sterling  measured  by  gold.  Under  the 
present  coinage,  the  same  British  sovereign  can  be 
converted  into  ®4.86  and  a fraction  in  gold  currency, 
and  consequently  the  latter  is  now  the  true  par  of  one 
pound  sterling,  as  was  particularly  shown  at  p.  32. 

A species  of  depreciation  is  that  which  re- 

sults from  the  creation  of  paper  money  as  a substi- 
tute for  gold  and  silver,  which  operates  upon  the 
value  of  the  total  existing, mass  throughout  the  com- 
mercial world,  precisely  like  the  discovery  of  new 


46 


A TREATISE  ON 


mines.  It  will  be  shown  in  the  proper  place  that  the 
introduction  of  paper  money  into  any  country  neces- 
sarily drives  out  a portion  of  its  metallic  money,  and 
thereby  augments  the  quantity  previously  existing  in 
other  countries,  the  inevitable  effect  of  which  is,  to 
depreciate  it  there  below  its  previous  value. 

I am  aware  that  the  term  fraud  as  applied  to  the 
reduction  of  the  weight  of  pure  gold  in  the  American 
eagle,  is  not  an  acceptable  term  to  many  people. 
It  is  certainly  a harsh  expression,  and  Congress  might 
have  avoided  the  imputation  conveyed  by  it  had  it 
enacted  that  the  laws  of  the  2Sth  of  June,  1834,  and 
the  18th  of  January,  1837,  should  have  had  no  appli- 
cation to  contracts  made  anterior  to  the  former  date, 
thus  leaving  the  rights  of  all  creditors  unimpaired.  It 
is  true  that  up  to  this  time,  creditors  have  not  sus- 
tained any  material  injury  from  the  operation  of  these 
laws,  inasmuch  as  debtors  have  generally  found  it  as 
profitable  to  pay  in  silver,  which  creditors  have  at  all 
times  been  obliged  to  receive,  as  in  gold;  but  this  is 
an  incident  which  could  not  have  been  positively 
foreseen,  and  which  may,  in  fact  before  long  cease  to 
operate,  for  under  the  new  proportions  between  gold 
and  silver,  the  banks  find  it  more  advantageous  to  pay 
in  gold  than  in  silver,  the  quantity  of  gold  contained 
in  the  eagle  of  the  present  coinage,  being  worth  in 
the  markets  of  Europe,  less  than  ten  silver  dollars. 
That  this  is  the  case,  may  be  inferred  from  the  fact, 
that  where  our  merchants  import  specie  from  Europe, 
they  give  a preference  to  gold,  and  where  they  ex- 
port specie  they  give  a preference  to  silver,  which 
would  not  be  the  case  if  the  legal  proportions  estab- 
lished an  exact  equivalency. 

That  this  position,  may  not,  however,  rest  upon 
mere  inference,  I will  establish  it  by  proof  which  can- 
not be  disputed. 

The  price  of  Mexican  dollars  in  London  within  the 
last  two  years  has  fluctuated  between  4^.  9|rf,and  4^. 
lOhd.  per  ounce.  They  were  quoted  on  the  27th 


CURRENCY  AND  BANKING. 


47 


February,  1838,  at  the  former  rate,  and  at  the  end  of 
December,  1839,  at  the  latter.  Since  January,  1840, 
to  the  date  of  the  last  advices,  (the  10th  of  April,)  the 
price  has  been  4^.  lOirf,  and  as  American  dollars  are 
of  the  same  standard  as  the  Mexican,  that  is,  nine 
parts  pure  silver  to  one  of  alloy,  the  same  value  may 
be  attached  to  them.  Now  as  the  weight  of  the 
American  dollar  is  412i  grains,  its  value  in  British 
money  is  at  this  period  4^.  2d.^  and  consequently,  the 
value  of  ten  silver  dollars  is  ^2  \s,  8d, 

But  the  quantity  of  gold  contained  in  the  eagle,  if 
sent  to  England  and  coined  into  British  currency 
would  only  be  worth  £2  Is.  \}dy  as  may  be  ascer- 
tained from  the  fact  that  the  eagle  contains  232^ 
grains  of  pure  gold,  and  the  sovereign,  or  pound  ster- 
ling, grains. 

For  (omitting  the  fraction,)  if  113  grains  are  equal 
to  ^1,  2321  grains  are  equal  to  £2  Is.  l^d. 

This  difference  of  near  seven  pence  sterling,  equal 
to  about  fourteen  cents,  upon  ten  dollars,  shows  that 
a gold  eagle  is  now  worth  one  and  four  tenths  of  one 
per  cent  less  than  ten  silver  dollars  in  England,  and 
if  it  has  not  shown  itself  in  the  United  States,  it  is 
simply  on  account  of  their  legal  forced  equivalency^ 
by  which  silver  is  undervalued  as  compared  with 
gold,  precisely  as  gold  was  undervalued  as  com- 
pared with  silver,  prior  to  the  28th  of  June,  1834.^ 

* If  it  be  said  that  American  dollars  would  not  be  as  saleable 
in  England  as  Mexican  dollars,  although  of  equal  intrinsic  value, 
on  account  of  the  greater  notoriety  of  the  former,  I would  reply, 
that  this  may  be  the  case,  and  on  that  account  I have  no  objec- 
tions, if  the  reader  chooses,  to  reduce  the  estimate  of  the  under- 
valuation of  silver,  one  quarter  or  one  half  per  cent,  which  has 
been  the  premium  in  New  York  upon  Mexican  dollars,  when 
paid  for  in  American  silver  or  gold,  from  January,  until  May  of 
the  present  year,  remarking  at  the  same  time,  that  during  the 
same  period,  the  weekly  quotations  of  “ The  Philadelphia  Price 
Current”  of  Mexican  dollars,  and  American  half  dollars  in  Phila- 
delphia depreciated  paper  currency,  have  been  uniformly  the 
same. 


48 


A TREATISE  ON 


It  matters  not  that  at  this  day  the  difference  is  of  a 
comparatively  trifling  amount.  If  it  be  but  the  tenth 
part  of  one  per  cent,  the  charge  is  established.  But 
how  do  we  know  that  in  the  course  of  time  the  pro- 
portions between  gold  and  silver  may  not  fall  back 
to  one  to  fifteen  as  they  stood  forty  years  ago,  in 
which  case  not  a debt  would  be  discharged  in  sil- 
ver, and  consequently,  creditors  on  all  contracts,  such 
as  bonds,  ground-rent  deeds,  annuities,  state,  city,  and 
county  loans  as  well  as  the  loans  of  rail  road,  canal, 
and  other  corporations,  contracted  before  the  28th  of 
June,  1834,  would  be  defrauded  by  law  of  six  per 
cent  of  the  amount  of  their  debts?  This  is  a grave 
question,  and  one  in  relation  to  which  more  will  be 
said  ill  the  chapter  On  the  impolicy  of  adhering  to 
our  present  mint  proportions  between  gold  and  silver/^ 
in  Book  the  Fourth.* 


CHAPTER  VIII. 

ON  THE  “ CREDIT  SYSTEM  ” OR  THE  INFLUENCE  OF 
CREDIT  IN  PROMOTING  NATIONAL  WEALTH. 

Much  has  been  said  in  the  United  States  of  late 
years  in  reference  to  the  important  agency  of  what  is 
called  the  ^‘credit  system,’^  in  promoting  national 
wealth,  but  few  persons  comparatively  have  ex- 
amined the  subject  with  sufficient  minuteness  to 
enable  them  to  form  a clear  conception  of  its  mode 
of  operation.  As  the  subject  is  one,  however,  which 
deserves  to  be  thoroughly  understood,  I will  endea- 
vor to  present  it  to  the  reader  in  such  a way  as  can- 
not fail,  I trust,  to  be  intelligible. 


* See  also  Appendix  A and  B. 


CURRENCY  AND  BANKING. 


49 


The  term  credit  is  applied  to  that  confidence 
reposed  by  one  individual  in  another,  which  induces 
the  former  to  permit  the  latter  to  have  a portion  of 
his  capital,  to  he  used  as  he  may  think  proper,  with- 
out the  immediate  transfer  of  an  equivalent,  but  upon 
his  stipulating  to  pay  such  equivalent  at  a future 
period,  together  with  a compensation  for  the  use  of 
the  capital  during  the  time  it  is  not  under  the  control 
of  its  owner.  Where  the  credit  is  given  on  a delivery 
of  capital  in  the  form  of  money,  it  is  called  a loan, 
and  the  charge  which  is  made  for  the  use  of  it  is 
called  interest.  Where  the  credit  is  given  on  a de- 
livery of  capital  in  the  form  of  other  commodities  or 
property  than  money,  it  is  called  a sale,  and  the 
charge  which  is  made  for  the  use  of  it  is  called  profit. 
In  both  cases  the  credited  party  is  placed  in  posses- 
sion of  something  possessing  intrinsic  value,  upon 
which  industry  can  be  employed,  or  by  which  it  can 
be  sustained;  for  even  in  the  case  where  the  capital 
consists  of  money,  it  must  be  exchanged  for  mer- 
chandise, raw  materials,  utensils,  food,  or  clothing, 
before  it  can  be  productively  employed  by  the  bor- 
rower. 

In  countries  where  confidence  between  individuals 
does  not  extensively  prevail,  the  credit  system  is  but 
partially  known.  Happily  for  our  country,  this  con- 
fidence has  always  existed  amongst  us,  and  for  ages, 
amongst  those  from  whom  we  are  descended,  and  it 
is  known  to  all  who  are  acquainted  with  the  history 
of  the  American  colonies,  that  a system  of  credit  was 
commenced  by  the  mother  country  with  the  landing 
of  the  first  pilgrim  on  our  shores,  and  has  never 
ceased  to  be  continued  to  the  present  day.  The 
United  States  owe  a vast  share  of  their  prosperity  to 
the  credit  system,  and  so  manifest  has  this  become  to 
every  well  informed  mind,  that  there  are  few  persons 
with  notions  so  antiquated  as  not  to  confess,  that 
credit,  when  regulated  by  the  rules  of  prudence,  and 
5 


50 


A TREATISE  ON 


not  abusedj  is  one  of  the  most  powerful  stimulants  to 
the  production  of  national  wealth. 

The  first  subject  for  inquiry  now  is,  how  does 
credit  operate  in  tlie  production  of  national  wealth? 
As  this  can  best  be  shown  by  a practical  illustration 
familiar  to  most  people,  I will  explain  it  somewhat  in 
detail. 

We  all  know  that  a very  large  proportion  of  the 
settlers  of  our  western  country  reach  their  tracts  of 
land  with  no  property  in  the  world  except  an  axe,  a 
spade,  a hoe,  a gun,  a cow,  a few  household  utensils, 
and  a change  or  two  of  clothing.  They  have  paid  a 
hundred  dollars  cash  for  eighty  acres  of  land,  the 
government  price  for  some  years  past,  or  they  may 
have  bought  it  on  a credit  from  private  individuals, 
at  a higher  price;  but  the  land  is  generally  covered 
with  limber,  and  is  of  no  use  in  its  present  condition, 
for  purposes  of  tillage.  In  this  destitute  condition, 
they  find  it  absolutely  impossible  to  commence  the 
clearing  of  their  lands,  unless  somebody  will  trust 
them  with  the  articles  of  which  they  stand  in  need, 
until  they  produce  a crop  of  some  kind  or  other. 
They  go  to  a neighboring  merchant  and  satisfy  him 
that  they  are  industrious,  economical  and  honest,  and 
that  if  he  will  let  them  have  on  credit  some  of  his 
capital,  in  the  form  of  sugar,  tea,  coffee,  flour,  corn, 
potatoes,  seed,  salt  provisions,  winter  clothing,  and 
such  other  things  as  are  absolutely  indispensable  for 
their  subsistence,  and  for  protecting  themselves  against 
the  weather,  they  will  pay  him  as  soon  as  the  land 
produces.  The  merchant,  who  has  located  himself 
in  this  spot  for  the  very  purpose  of  supplying  the 
wants  of  the  settlers,  consents  to  the  request,  and 
agrees  to  give  to  his  new  neighbors,  credit  for  fifty  or 
a hundred  dollars  worth  of  things.  With  this  bor- 
rowed capital  each  settler  begins  his  labors,  and  when 
the  crops  are  harvested,  the  merchant  is  paid  in  grain 
and  other  productions,  and  the  settler  finds  himself, 
by  the  aid  of  this  credit,  in  possession  of  a surplus. 


CURRENCY  AND  BANKING. 


51 


sufficient  in  part  to  support  his  family  for  another 
year,  which  he  could  not  possibly  have  possessed, 
had  the  merchant  refused  to  give  him  credit. 

Here  we  see  at  once  the  agency  of  credit  in  creating 
a new  capital.  The  settler  without  the  credit,  would 
have  perished,  or  have  dragged  out  a wretched  life, 
whilst  the  merchant  might  have  had  a dead  stock 
lying  unemployed,  producing  nothing  for  its  owner, 
or  for  any  body  else. 

What  has  been  here  described  in  reference  to  the 
poorest  class  of  settlers,  is  equally  true  of  those  who 
emigrate  to  the  western  country  with  a moderate 
share  of  wealth.  There  is  scarcely  an  individual 
amongst  them,  who  for  the  purpose  of  extending  the 
culture  of  his  land,  or  adding  to  his  improvements, 
does  not,  at  some  period  of  the  year,  purchase  goods 
or  implements  on  credit  of  the  neighboring  mer- 
chants, in  anticipation  of  his  next  crop,  thereby  ac- 
quiring the  means  of  augmenting  the  products  of  his 
farm,  and  consequently  of  creating  a capital  which 
could  not  have  existed  but  for  the  credit  he  obtained. 
Most  especially  is  this  true,  in  regard  to  a large  pro- 
portion of  the  planters  of  the  cotton  growing  states. 
These  planters,  it  is  well  known,  are  in  the  practice 
of  obtaining  large  supplies  of  clothing  and  subsistence 
for  their  slaves,  and  of  every  article  for  their  own  con- 
sumption, upon  credit  from  the  neighboring  mer- 
chants, in  anticipation  of  the  next  year’s  crop;  and  it 
is  hence  manifest,  that  the  wealth  of  those  states  is 
eminently  promoted  by  the  operation  of  credit. 

And  now,  whilst  I am  on  this  subject,  it  may  not 
be  amiss  to  trace  to  their  source  the  further  operations 
of  credit,  by  which  the  country  merchants  have  been 
enabled  to  aid  the  settlers  and  planters  in  augmenting 
the  national  wealth.  Few  or  none  of  these  traders, 
have  a capital  of  their  own  adequate  to  carry  on 
business  to  the  extent  they  do.  They  are  themselves 
obliged  to  obtain  most  of  theirS  supplies  upon  credit 
from  the  wholesale  merchants  of  the  large  interior 


U.0FIILU6. 


52 


A TREATISE  ON 


towns  and  the  Atlantic  cities,  whilst  these  in  turn 
avail  themselves  more  or  less  of  credit  with  the  Eu- 
ropean manufacturers.  This,  it  is  true,  is  not  the 
case  at  the  present  day,  as  much  as  it  formerly  was, 
owing  to  the  gradual  accumulation  of  domestic  capi- 
tal; but,  nevertheless,  it  not  unfrequently  happens 
that  a settler  in  the  remotest  region  of  Missouri 
ploughs  his  land  and  produees  his  crop  by  means  of 
credit  obtained,  it  may  be,  through  three  or  four  suc- 
cessive links,  from  a manufacturer  of  hardware  in 
Birmingham,  or  of  one  of  dry  goods  in  Manchester. 
And  yet,  with  such  facts  before  our  eyes,  there  are 
still  to  be  found  amongst  us,  a few  remains  of  that 
weak-minded  prejudice  against  foreign  capital,  which 
was  at  no  very  distant  day  so  universal,  that  it  was 
deemed  by  many  of  the  states  unwise  to  borrow 
foreign  capital  at  five  per  cent.,  that  could  be  pro- 
ductively employed  at  a profit  of  ten  per  cent.,  upon 
the  ground  that  it  would  drain  the  coiuitry  of  specie 
equal  to  the  interest.  Happily,  however,  new  views 
have  broken  in  upon  the  minds  of  most  of  our  legis- 
lators, and  although  there  are  still  laws  prohibiting 
the  free  introduction  of  foreign  capital  into  some  of 
our  local  investments,  yet  foreign  loans  upon  the  se- 
curity of  public  stocks  and  of  those  of  improvement 
companies,  and  banks  have  of  late  been  carried  to 
quite  a sufficient  extent.^ 

It  is  not,  however,  to  those  engaged  in  agriculture 
alone,  that  credit  is  beneficial.  The  merchant  fre- 
quently undertakes  a voyage  with  a cargo  purchased 
on  credit,  which,  when  successful,  adds  to  the  national 
wealth.  The  manufacturer,  too,  who  has  physical 
power  applicable  to  the  production  of  commodities, 
but  no  raw  materials  to  work  upon,  finds  himself,  by 

* It  is  computed  that  at  this  period  (1840)  upwards  of  a hun- 
dred millions  of  dollars  of  European  capital,  chiefly  British,  are 
invested  in  such  securities.  Many  persons  estimate  the  amount 
at  near  two  hundred  millions,  but  that  is  probably  an  over  esti- 
mate. 


CURRENCY  AND  BANKING. 


53 


the  aid  of  credit,  enabled  to  procure  the  raw  materials 
of  other  people,  to  which  he  adds  a value  by  the 
application  of  his  labor,  and  consequently  also  aug- 
ments the  national  wealth.  The  same  remark  may 
apply  to  mechanics  and  even  to  day  laborers,  and 
there  is  hardly  in  the  community  an  individual  en- 
gaged in  any  species  of  business  who  has  not  at  some 
period  found  himself  benefitted  by  the  exercise  of 
credit. 

With  such  advantages  resulting  from  the  use  of 
credit,  so  palpable  and  so  well  known  to  every  body, 
it  is  not  extraordinary  that  the  “credit  system’’  should 
be  so  much  extolled.  It  is  indeed  a great  moral 
power,  without  the  employment  of  which  our  country 
could  never  in  so  short  a period  of  time  have  attained 
to  its  present  advanced  state  of  wealth  and  prosperity. 
Whilst  seeing  and  acknowledging,  however,  this  im- 
portant truth,  we  must  not  lose  sight  of  another  truth 
equally  important,  which  is,  that  nothing  but  capital^ 
that  is,  something  which  possesses  an  intrinsic  value, 
can  possibly  be  the  means  of  enabling  the  person 
who  obtains  it  on  credit  to  produce  a new  commodity 
or  a new  value,  and  we  must  be  particularly  careful 
to  remember  that  the  credit  system  thus  extolled,  is 
not  the  banking  system,  as  some  would  endeavor  to 
inculcate  in  their  speeches  and  writings. 


CHAPTER  IX. 

ON  THE  LAWS  WHICH  REGULATE  THE  HIRE  OF  CAPL 
TAL,  AND  ON  THE  IMPOLICY  OF  USURY  LAWS. 

When  a person  has  more  capital  than  he  wants  to 
employ  in  his  own  particular  business,  he  very  natu- 
rally prefers  to  let  other  people  have  the  use  of  it,  to 
5^ 


54 


A TREATISE  ON 


permitting  it  to  lie  idle  and  unproductive,  and  for  this 
use  he  will  charge  such  sum  per  annum  as  the  com- 
petition of  the  market  will  etiable  him  to  obtain.  If 
his  capital  consist  of  lands  or  houses,  the  compensa- 
tion which  he  derives  from  its  use  is  called  rent.  If 
it  consists  of  ships,  it  is  called  freight.  If  it  consists 
of  horses  and  carriages,  it  is  called  hire.  If  it  consists 
of  railroads,  bridges,  or  canals,  it  is  called  toll.  If  it 
consists  of  commodities,  it  is  called  profit;  and  if  it 
consists  of  money,  it  is  called  interest.  In  all  these 
cases  except  the  two  last,  the  specific  things  loaned 
or  hired  are  returned  to  their  proprietors.  In  the 
case  of  commodities,  a sum  of  money  equal  in  value 
to  the  commodities  purchased,  with  the  seller’s  profit 
added,  is  the  uniform  mode  of  replacing  this  species 
of  hired  capital.  In  the  case  of  money,  another  sum, 
though  not  consisting  of  the  identical  pieces  of  coin, 
equal  in  value  to  the  amount  of  the  sum  loaned,  with 
the  interest,  is  the  uniform  mode  of  replacing  this 
species  of  hired  capital. 

In  all  countries  where  the  competition  of  the  mar- 
ket is  permitted  to  operate  without  legislative  restric- 
tions, it  is  evident  that  the  charge  for  the  use  of 
capital  in  any  of  its  forms  can  never  be  permanently 
or  materially  higher  or  lower  than  that  medium  which 
presents  the  common  ground  upon  which  it  is  the  in- 
terest of  the  capitalist  and  the  person  with  whom  he 
deals,  to  meet.  If  lands,  houses,  horses,  wagons, 
railroads,  bridges,  and  canals,  be  abundant  in  pro- 
portion to  the  demand,  the  charge  for  the  use  of  them 
will  be  proportionally  low.  If  they  be  scarce,  it  will 
be  proportionally  high.  The  same  is  true  of  com- 
modities, under  which  head  is  included  merchandise 
and  produce  of  every  description,  and  which,  with 
the  metallic  money,  constitute  what  is  called  the  cir- 
culating capital  of  a country,  without  which  neither 
lands,  houses,  ships,  horses,  wagons,  railroads,  bridges 
nor  canals,  would  be  of  any  immediate  value. 

Now  although  metallic  money  constitutes  one  of 


CURRENCY  AND  BANKING. 


5 


the  forms  in  which  capital  is  hired  by  persons  who 
wish  to  employ  capital  in  any  industrious  pursuit, 
yet,  as  observed  in  the  last  chapter,  it  is  never  the 
identical  thing  that  is  wanted,  except  indeed  by  gold 
and  silver  ware  manufacturers  for  the  purpose  of 
melting.  Money  is  merely  hired  as  the  instrument 
by  which  raw  materials,  agricultural  produce,  or 
merchandise,  are  more  conveniently  to  be  obtained 
by  the  borrower,  or  by  those  in  his  employ  to  whom 
he  has  paid  it  away  as  wages;  and  it  must  therefore 
be  very  evident,  that  as  a component  part  of  the  total 
mass  of  the  circulating  capital,  it  is  governed  by  the 
same  laws  as  those  by  which  the  rest  of  this  mass  is 
governed.  In  other  words,^  the  rate  of  interest  in  a 
country  is  determined  by  the  aggregate  quantity  of 
circulating  capital,  metallic  money  itself  included.  If 
that  be  abundant,  interest  will  be  low,  as  in  England 
and  Holland;  and  if  that  be  scarce  interest  will  be 
high,  as  in  all  the  new  states  of  our  Union. 

The  unfortunate  existence,  however,  in  many  coun- 
tries, and  amongst  them  our  own,  of  laws  restricting 
the  charge  which  the  owner  of  capital  in  the  form 
of  money  shall  derive  from  its  hire,  disturbs  in  some 
degree  the  natural  operation  of  things,  and  prevents 
that  uniform  relation  which  profit  and  interest  would 
otherwise  invariably  bear  to  each  other.  By  impos- 
ing a penalty  upon  loans  at  a higher  rate  of  interest 
than  six  per  cent,  per  annum,  for  example,  the  most 
usual  rate  established  by  our  state  laws,  capital  is 
either  driven  out  to  more  favored  quarters,  or  pre- 
vented from  flowing  in,  in  either  of  which  events  the 
mass  of  the  circulating  capital  is  diminished,  and  con- 
sequently the  hire  for  its  use  augmented.  In  addition 
to  this,  too,  a burdensome  tax  is  imposed  upon  the 
industry  of  the  country,  by  compelling  those  who 
have  not  the  best  security  to  offer,  which  embraces  a 
large  portion  of  the  industrious  classes,  to  resort  to 
lenders,  who  in  addition  to  the  fair  value  of  the  mo- 
ney, and  a reasonable  allowance  for  the  risk  of  loan- 


56 


A TREATISE  ON 


ing  on  personal  security,  which  would  be  the  uniform 
market  price  in  the  absence  of  usury  laws,  must  be 
paid  for  the  odium  and  risk  they  incur  by  violatino- 
the  laws  of  the  land.  There  is  no  sound  reason  why 
the  charge  for  the  use  of  money  should  be  fixed  by 
law,  that  would  not  equally  apply  to  fixing  by  law 
the  rent  of  lands  and  houses,  or  the  freight  of  ships, 
the  hire  of  horses  and  carriages,  or  the  profit  on  mer- 
chandise sold.  The  lending  of  money  for  a year  is 
nothing  but  selling  capital  upon  a credit  for  a year, 
and  so  convinced  of  the  absurdity  of  discriminating 
between  a sale  of  money,  and  a sale  of  goods  is  a 
large  proportion  of  the  capitalists  of  every  country, 
that  evasions  of  the  usury  laws  are  every  where  prac- 
tised by  expedients  which  it  is  not  easy  to  prevent. 
Some  of  these  expedients  will  be  treated  of  in  a fu- 
ture part  of  this  work,  but  a very  common  one  is  that 
practised  almost  daily  on  the  stock  exchanges  of  New 
York  and  Philadelphia,  whereby  under  a fictitious 
purchase  of  stock  for  cash,  and  a fictitious  sale  on  cre- 
dit of  the  same  ideal  stock,  through  the  agency  of  a 
broker,  money  is  loaned  at  a rate  as  far  above  the 
legal  rate  as  covers  the  risk  of  trusting  to  personal 
security,  as  well  as  the  charge  for  the  odium  and 
hazard  incurred  by  an  illegal  transaction.^ 

These  remarks  on  the  value  of  money,  as  a com- 
ponent part  of  the  circulating  capital  of  a country,  it 
will  be  observed,  have  reference  to  that  general  and 

* This  operation  is  thus  performed:  A borrower  is  willing  to 
give  12  per  cent,  per  annum  for  the  use  of  money,  and  he  agrees 
to  give  gll2  at  twelve  months’  credit  for  a stock  worth  in  the 
market  only  glOO,  and  stipulates  with  the  broker,  that  contem- 
poraneously with  the  purchase  he  is  to  sell  the  stock  at  glOO 
cash.  The  broker  finds  a lender  who  has  money  but  no  stock, 
but  who  is  willing  to  give  glOO  cash  for  stock,  if  he  can  con- 
temporaneously sell  it  at  gll2  for  an  approved  note  at  twelve 
months  credit.  The  broker  manages  the  negotiation,  and  thus 
two  persons  are  made  to  buy  and  sell  what  has  no  real  exist- 
ence. Such  transactions,  however,  are  clearly  illegal,  but  cases 
rarely  occur  in  which  an  appeal  is  made  to  the  law. 


CURRENCY  AND  BANKING. 


57 


enduring  state  of  things,  which  covers  a period  of 
years.  Thus,  I would  say,  that  capital  is  more 
plenty  in  the  United  States  in  the  year  1840  than  it 
was  in  the  year  1798.  In  the  latter  year  the  Federal 
government  could  not  borrow  money  at  less  than 
eight  per  cent.  It  could  now  borrow  at  five  per 
cent.,  and  has  even,  at  one  period  since  the  year  1815, 
borrowed  at  four  and  a half  per  cent.  Most  of  the 
Atlantic  states,  and  some  of  the  western  states,  have 
of  late  years  borrowed  money  at  five  per  cent.,  and  it 
may  be  remarked,  that  although  the  market  price  of 
public  stocks  may  be  temporarily  affected  by  va- 
rious causes,  yet  no  permanent  influence  can  be  ex- 
erted upon  them,  unless  a diminution  of  the  aggre- 
gate mass  of  the  circulating  capital  of  the  country, 
that  is,  of  the  national  wealth,  should  take  place.* 
The  fluctuations  in  the  money  market  of  merchants 
and  stock-jobbers,  and  even  at  times  in  the  market  of 
mortgages,  by  which  sometimes  a high  rate  of  inte- 
rest is  paid  for  capital,  are  generally  of  a temporary 
nature,  and  to  be  accounted  for  upon  the  principle 
that  wherever  there  is  credit,  and  especially  if  there 
be  banks,  there  will  at  times  be  over-trading  and 
over-speculation.  The  rate  of  interest  upon  capital 
must  in  the  long  run  be  governed  by  the  rate  of 
profit  to  be  made  by  its  employment;  whilst  for 
short  periods,  it  will  depend  upon  the  ratio  of  the 
supply  to  the  demand,  and  upon  the  security  offered 
in  the  money  market. 

* Since  the  first  edition  of  this  work  was  published,  a great 
depression  has  taken  place  in  the  English  and  American  mar- 
kets in  the  price  of  state  stocks,  putting  an  end  for  the  present 
to  the  possibility  of  obtaining  loans  at  five  per  cent. 


58 


A TREATISE  ON 


CHAPTER  X. 

EXAMINATION  OF  THE  COMMON  OPINION  RESPECTING 
THE  SINKING  OF  CAPITAL. 

There  is  a subject  intimately  connected  with  that 
of  money,  which  deserves  a passing  notice  in  a work 
of  this  kind.  I allude  to  the  common  notion,  that  a 
community  sustains  no  injury  from  the  construction 
of  public  works  or  improvements  that  turn  out  un- 
productive, inasmuch  as  they  afford  employment  to 
’many  people  without  occasioning  any  loss  of  capital, 
the  money  not  being  sunk,  but  merely  having 
changed  hands.  To  this  error,  which  is  more  widely 
spread  than  many  people  imagine,  may  be  ascribed 
the  loss  of  tens  of  millions  of  dollars  of  property 
in  the  United  States,  and  if  not  eradicated,  it  will 
lead  to  the  loss  of  tens  of  millions  more.  Immense 
expenditures  are  annually  made  by  the  federal  gov- 
ernment, by  all  the  state  governments,  by  counties, 
townships,  cities,  towns,  boroughs,  and  villages,  by 
private  corporations  of  every  description,  and  by  in- 
stitutions established  for  every  imaginable  purpose, 
literary,  charitable,  and  religious,  which  would  never 
be  made  if  this  matter  were  perfectly  understood;  and 
as  it  is  one  that  can  be  made  plain  by  a very  simple 
illustration,  I will  present  such  a one  to  the  reader. 

In  a former  chapter  it  was  shown  that  metallic 
money  was  never  employed  as  capital  for  the  carry- 
ing on  of  any  branch  of  industry,  except  that  of  the 
manufacture  of  gold  and  silver  ware,  but  was  the 
mere  instrument  by  which  capital,  consisting  of  other 
commodities,  could  be  conveniently  transferred  from 
hand  to  hand.  The  function,  therefore,  which  money 
performs  in  the  business  operations  of  the  commu- 
nity, may  be  compared  to  the  function  performed  by 
carts,  wagons,  ships  and  railroad-cars,  in  transporting 


CURRENCY  AND  BANKING. 


59 


from  one  possessor  to  another  the  commodities  which 
he  needs  to  carry  on  his  business.  Now  every  body 
can  perceive,  that  in  performing  the  business  of 
transporting  commodities,  the  vehicles  here  men- 
tioned are  not  destroyed  or  sunk  until  they  are  worn 
out,  so  neither  is  the  money  which  performs  the  func- 
tion of  conveying  the  commodities  from  the  posses- 
sion of  one  person  to  that  of  another,  destroyed  or 
sunk.  It  is,  therefore,  clear,  that  although  the  com- 
mon mode  of  expressing  a loss  by  an  abortive  under- 
taking is  that  “ money  has  been  sunk,’^  yet  it  is  easy 
to  be  seen,  that  no  money  can  ever  have  been  sunk, 
but  that  the  sinking  has  been  of  something  else  than 
money.  What  that  something  else  has  been  will  now 
appear. 

In  Pennsylvania,  as  well  as  in  other  states,  there 
have  been  at  times  extraordinary  excitements  in  re- 
ference to  internal  improvements.  Turnpike  roads, 
bridges,  canals,  and  railroads,  have  each  in  their  turn 
commanded  popular  favor,  and  have  been  exten- 
sively constructed,  without  a due  examination  of 
their  cost  and  of  their  probable  results.  The  conse- 
quence has  been,  that  some  of  these  enterprises  have 
proved  wholly  abortive,  and  have  been  abandoned 
without  being  completed,  or,  if  completed,  have  been 
useless  as  a source  of  income,  and  have  consequently 
occasioned  to  their  proprietors  a loss  equal  to  the 
whole  expenditure.  Now  in  all  such  cases,  what 
has  been  the  capital  that  has  been  sunk?  I answer, 
the  raw  materials  of  which  the  works  were  con- 
structed, such  as  stone,  lime,  wood,  timber  and  iron, 
the  food  and  drink,  clothing  and  fuel  of  the  laborers 
employed  upon  the  same,  (for  the  procuring  of  which 
the  money  paid  to  them  as  wages  only  served  as  the 
instrument,)  the  vehicles,  implements,  and  tools  worn 
out  or  deteriorated  by  the  work,  and  the  food  con- 
sumed by  the  horses  and  cattle  employed.  All  these 
articles,  being  forms  of  accumulated  capital,  possess- 
ing a value  equivalent  to  the  sum  in  money  paid  for 


60 


A TREATISE  ON 


them,  constitute  the  capital  sunk,  and  they  are  said 
to  have  been  sunk,  because  after  they  have  been  used 
or  consumed,  there  is  nothing  of  value  to  be  shown 
in  their  place.  The  process  which  has  in  reality 
taken  place  has  been  the  mere  transmutation  of  stone 
and  lime,  wood  and  iron,  from  a form  in  which  they 
possessed  a value  into  one  in  which  they  possess  no 
value,  and  the  conversion  of  a large  quantity  of  bread 
and  meat,  whiskey  and  rum,  butter  and  milk,  sugar 
and  coffee,  coats  and  jackets,  coal  and  wood,  hay  and 
oats,  into  roads  and  canals,  without  the  possibility  of 
a reconversion  to  those  original  elements. 

But  it  may  be  said,  that  even  admitting  all  this  to 
be  true,  still  a vast  number  of  people  will  have  been 
employed.  Granted;  but  employed  in  producing 
nothing  of  value,  so  that  their  industry  has  been  of 
no  more  benefit  to  the  community  than  if  it  had  been 
employed  in  turning  grindstones  where  there  was 
nothing  to  grind,  or  in  digging  ditches  merely  to  fill 
them  up  again.  It  would  hardly  be  argued  that  had 
it  not  been  for  this  employment,  these  people  would 
have  remained  idle.  This  would  have  been  impos- 
sible. The  identical  capital  consumed  in  the  abortive 
enterprise  would  have  been  seeking  for  laborers  in 
some  other  pursuit,  and  these  laborers  would  have 
met  it  on  the  way,  or  have  taken  the  place  of  those 
who  did.  These  remarks,  it  will  be  observed,  have 
reference  to  cases  where  the  whole  enterprise  has 
failed,  such  as  happened  many  years  ago,  with  a total 
sinking  of  large  capitals,  in  the  construction  of  the 
Philadelphia  and  Susquehanna,  and  the  Chesapeake 
and  Delaware  canals.  They  are,  however,  equally 
applicable  to  partial  failures  of  enterprises  as  far  as 
they  go,  and  the  only  true  test  of  the  result  of  an 
improvement,  is  to  be  found  in  its  nett  income.  If 
that  be  greater  than  the  amount  that  could  have  been 
derived  from  the  employment  of  the  same  capital  in 
some  productive  branch  of  agriculture,  commerce,  or 
manufactures,  the  investment  will  have  been  a profit- 


CURRENCY  AND  BANKING. 


61 


able  one.  If  it  be  merely  of  an  equal  amount,  it  will 
have  been  an  indifferent  investment,  and  if  it  be  of 
less  amount,  it  will  have  been  a positive  loss  to  the 
community  as  well  as  to  the  proprietors.  The  truth 
of  this  proposition  can  easily  be  seen  by  any  one  who 
will  apply  it  to  the  case  of  a single  farm.  If  a farmer, 
who  has  a thousand  dollars  which  he  can  lend  at  six 
per  cent.,  or  cause  to  produce  him  six  per  cent.,  by 
grazing  cattle  or  tilling  more  ground,  should  lay  it 
out  in  making  a new  road  to  facilitate  his  intercourse 
with  the  market,  by  which  he  should  only  save  twen- 
ty dollars  a year  in  the  reduced  transportation  of  his 
produce,  it  is  clear  that  he  would  not  be  as  well  off 
by  forty  dollars  a year,  as  if  he  had  continued  to  use 
the  old  road,  and  employed  his  capital  in  one  of  the 
other  modes.  An  entire  state  is  but  a large  farm, 
and  what  is  true  of  one  is  true  of  the  other. 

But  there  is  an  argument  which  may  here  be  urged 
with  some  apparent  force,  and  it  is  one  that  is  en- 
titled to  consideration.  It  is  that  in  estimating  the 
value  of  a road  or  canal,  the  whole  benefit  to  the 
community  resulting  from  it  is  not  to  be  measured  by 
the  mere  income  which  the  owners  or  stockholders 
derive  from  it.  A part  of  the  benefit  is  shared  by  the 
public,  that  is,  by  the  producers  and  consumers  of  the 
commodities  which  pass  over  the  road  or  canal,  and 
by  the  persons  who  travel  over  it.  It  may,  therefore, 
very  well  happen,  say  the  objectors,  that  whilst  the 
stockholders  of  the  road  get  only  three  per  cent,  divi- 
dends on  their  stock,  the  advantages  which  the  com- 
munity gain  may  be  equal  to  three,  five,  or  seven  per 
cent.  more.  Let  us  analyse  this  argument,  which 
appears  to  possess  so  much  plausibility,  and  see  to 
what  it  will  lead  us. 

The  interest  of  money  or  capital  is  that  sum  which 
is  paid  to  the  owner  of  money  or  capital  for  its  use, 
and  is,  as  we  have  shown  in  another  place,  that  rate 
which  is  established  by  the  competition  of  the  market. 
When  persons  borrow  capital  for  employment  in  any 
6 


62 


A TREATISE  ON 


productive  branch  of  industry,  whether  connected 
with  agriculture,  commerce,  or  manufactures,  it  is 
always  with  the  expectation  that  they  can  make  out 
of  it  a sum  beyond  that  which  they  pay  for  its  use, 
and  the  average  rate  of  interest  may  be  considered 
to  be  the  rate  which  all  judicious  applications  of  capi- 
tal ought  to  produce.  In  the  Atlantic  states  of  the 
Union,  where  capital  is  more  abundant  than  in  the 
western  states,  the  annual  net  profits  of  capital,  after 
defraying  all  the  expenses  of  wages,  rent,  superin- 
tendence and  other  charges  incident  to  the  enterprise, 
may  be  estimated  at  about  six  per  cent.,*  and  six  per 
cent,  may  therefore  be  considered,  in  the  region  of 
country  mentioned,  as  the  profit  which  ought  to  be 
produced  from  capital,  and  consequently  in  those 
cases,  where  a road  or  canal  does  not  produce  a benefit 
to  the  stockholders,  equal  to  six  per  cent,  upon  the 
outlay,  there  will  have  been  a sinking  of  capital  equal 
to  the  principal  sum  that  ought  to  have  yielded  the 
deficiency;  and  for  this  reason,  that  six  per  cent,  would 
have  been  the  profit  derived  from  the  employment  of 
the  capital  in  other  pursuits. 

The  next  question  then  which  presents  itself  is 
this.  Can  it  be,  that  the  public  shall  derive  a benefit 
of  three,  five  or  seven  per  cent,  per  annum  from  the 
construction  of  a road  or  canal,  whilst  the  proprie- 
tors of  the  improvement  derive  only  a profit  of  three 
per  cent? 

It  is  a possible  case,  that  a charter  of  incorporation 
may  have  fixed  the  rates  of  toll  on  a road  or  canal  so 
low,  without  any  power  on  the  part  of  the  company 
to  raise  them,  as  that  the  income  arising  therefrom 
shall  not  be  more  than  equivalent  to  three  per  cent, 
upon  the  expenditure.  In  such  an  instance,  it  might 
happen  that  the  public  should  enjoy  an  advantage 

* The  laws  of  New  York  establish  the  rate  of  interest  at 
seven  per  cent.  In  all  the  other  Atlantic  states  it  is  fixed  at  six 
per  cent. 


CURRENCY  AND  BANKING. 


63 


equal  to  what  has  been  named  and  even  more.  But, 
I apprehend,  that  no  such  cases  exist  in  the  United 
States;  and  I think  I am  warranted  in  saying,  that  no 
company  has  ever  accepted  of  a charter  which  does 
not  allow  a chance  for  a revenue  exceeding  six  per 
cent.,  besides  reserving  a sum  adequate  to  keep  the 
works  in  repair  and  pay  all  other  expenses.  When, 
therefore,  the  income  of  a road  or  canal  falls  short  of 
an  average  of  six  per  cent.,  it  must  be,  and  can  only 
be,  in  consequence  of  its  not  being  used  to  a sufficient 
extent,  that  is,  in  consequence  of  a sufficient  portion  of 
the  public’s  not  finding  it  to  be  for  its  interest  to  pay 
the  toll,  rather  than  to  transport  their  commodities  or 
their  persons  on  some  other  route.  The  only  con- 
ceivable mode  of  ascertaining  the  utility  to  the  public 
of  an  improvement,  is  by  the  amount  they  are  willing 
to  pay  for  its  use;  and  if  this  amount  be  equivalent 
to  not  more  than  three  per  cent,  of  the  capital  ex- 
pended, it  may  be  considered  as  an  indisputable 
point,  that  the  present  loss  to  the  community  by  the 
investment  is  equal  to  at  least  one  half  of  the  capital. 
Whether  this  shall  have  resulted  from  a bad  location 
of  the  improvement,  from  the  limited  quantity  and 
number  of  commodities  and  passengers  that  are  trans- 
ported over  it,  from  an  excess  in  the  cost  of  the  work 
over  the  estimates,  from  extraordinary  damage  or  ob- 
struction from  freshets  or  droughts,  or  other  causes, 
or  from  the  road  or  canal  being  superseded  or  in- 
terfered with  by  a rival  improvement,  it  matters  not. 
The  effect  is  precisely  the  same  in  either  case.  The 
stockholders,  and  consequently  the  community,  have 
not  only  failed  to  reap  the  usual  profit  on  a portion  of 
their  capital,  but  have  seen  it  transmuted  into  a form 
wherein  it  can  never  again  be  rendered  capable  of 
producing  that  profit. 

But  it  may  be  said  that  roads  and  canals  increase  the 
value  of  the  lands  through  and  near  which  they  pass. 
This  may  be  sometimes  true,  but  it  must  not  be  for- 
gotten that  they  also  diminish  the  value  of  other  lands 


64 


A TREATISE  ON 


through  which  they  do  not  pass,  by  drawing  otf  a 
part  of  their  population,  and  of  the  travelling  which 
used  to  frequent  old  routes.^  But  after  all,  there  is 
no  real  value  conferred  upon  the  country  at  large  by 
a road  or  canal  in  an  economical  point  of  view,  but 
what  is  to  be  measured  by  the  actual  reduction  in  the 
expense  of  transporting  its  produce  to  market  and 
obtaining  its  distant  supplies,  and  in  the  facilities 
afforded  to  the  conveyance  of  passengers.  Where  the 
aggregate  of  these  benefits  is  to  the  parties  concerned 
of  such  value  as  to  induce  them  to  pay  to  the  capi- 
talists who  have  constructed  the  improvement  for 
them,  the  same  interest  for  the  use  of  their  capital, 
that  they  could  have  obtained  by  its  employment  in 
other  pursuits,  then,  and  then  only,  has  the  expendi- 
ture been  beneficial  to  the  country.  It  is  no  doubt 
true,  that  turnpike  roads  or  rail  roads  are  very  con- 
venient and  advantageous  to  those  who  reside  on 
their  route,  and  that  they  may  all  be  willing  at  times 
to  pay  for  the  privilege  of  passing  over  them.  But 
even  the  value  of  this  convenience  and  advantage  has 
its  limits.  The  turnpike  road  from  Philadelphia  to 
Frankford,  a distance  of  six  miles,  is  extremely  con- 
venient in  the  winter  season  to  all  those  who  reside 

* The  following  article  is  taken  from  a late  English  news- 
paper as  being  quite  in  point. 

Effects  of  Railroads  upon  Tavern  Property, — Previously  to  the 
opening  of  the  Great  Western  and  the  Southampton  railroads 
there  were  eighty-two  long  stages  passed  through  the  town  of 
Egham  daily,  nearly  all  of  which  changed  horses  at  the  se- 
veral inns  in  the  town.  Now,  the  eighty-two  are  reduced  to 
four.  Some  of  the  inns  have  been  closed,  and  several  others 
are  about  to  be  shut  up.  The  following  is  a proof  of  the  great 
reduction  which  has  taken  place  in  the  value  of  tavern  and  pub- 
lic house  property: — Three  years  ago  the  Catherine  Wheel  Inn 
Egham,  which  makes  up  thirty  beds,  and  to  which  are  attached 
an  acre  and  a half  of  garden  ground,  a bowling  green,  large 
barns,  sheds,  coach  house,  and  stabling  for  upwards  of  thirty 
horses,  let  for  250/.  a year.  It  then  carried  on  a profitable  trade, 
and  the  proprietor  realised  a handsome  living.  The  same  pro- 
perty was  let,  a few  days  since,  at  50/.  a year. 


CURRENCY  AND  BANKING. 


65 


on  its  border  and  in  its  vicinity;  yet  as  they  prefer 
other  roads  in  summer,  and  are  not  willing  to  pay 
for  its  use  in  winter  an  aggregate  sum  equal  to  the 
interest  on  the  capital  expended  in  its  construction,  it 
is  manifest  that  the  existence  of  the  road  is  not  con- 
sidered to  be  worth  to  them  that  amount.  Who  could 
doubt  that  the  investment  of  a thousand  dollars  in  an 
omnibus  to  run  from  the  Delaware  to  Schuylkill 
would  be  a loss  to  the  community  as  well  as  to  the 
owner,  if  the  public  for  whose  benefit  it  was  esta- 
blished, would  prefer  to  walk  rather  than  to  pay  for 
its  use  more  than  thirty  dollars  a year  over  and  above 
the  expenses  and  repairs?  I say  loss  to  the  com- 
munity,’^ because,  had  it  not  been  for  this  misappli- 
cation of  capital,  sixty  dollars  might  have  been  ob- 
tained for  it  on  loan  by  the  proprietor,  and  conse- 
quently the  aggregate  wealth  of  the  community  would 
have  been  augmented  to  the  additional  extent  of 
thirty  dollars. 

There  is  still,  however,  another  popular  error  very 
prevalent  on  tins  subject,  which  ought  not  to  be 
passed  over  without  notice.  It  is,  that  although 
roads  and  canals  may  not  produce  to  their  proprietors 
at  the  very  moment  of  their  completion,  an  income 
equal  to  the  ordinary  interest  on  capital,  yet  that  they 
will  do  it  at  some  future  period,  say,  three,  five,  or 
ten  years  hence.  If  a farmer  were  to  expend  a hun- 
dred dollars  to-day  in  the  purchase  of  a wagon,  which 
he  did  not  expect  to  use  for  three,  five,  or  ten  years, 
he  would  be  a very  bad  calculator,  if  he  did  not  know 
that  the  interest  on  a hundred  dollars  or  the  profit  he 
could  have  made  on  that  sum  for  that  number  of 
years,  would  add  to  its  cost  an  amount  precisely 
equal  to  that  interest  or  profit,  and  that  the  whole  of 
this  amount  would  be  an  uncompensated  loss  to  him, 
besides  what  he  might  lose  by  the  deterioration  of  the 
wagon.  The  same  is  true  of  all  other  investments 
made  in  anticipation  of  future  periods.  One  million 
of  dollars  expended  on  a road,  that  should  not  be 
6^ 


A TREATISE  ON 


,ated  for  eleven  or  twelve  years,  would  cost  two 
millions  of  dollars  at  the  expiration  of  that  term^ 
because  money  at  compound  interest  of  six  per  cent, 
per  annum,  doubles  in  about  eleven  years  and  eight 
months,  and  that  sum  would  have  been  the  amount 
in  the  hands  of  the  capitalists  had  they  employed  it 
in  any  branch  of  productive  industry.*  If  repairs 
should  also  be  required,  the  amount  would  make  a 
further  addition  to  the  cost  of  the  road,  unless  they 
were  met  by  the  receipt  of  a corresponding  amount 
of  tolls;  and  hence  it  is  evident,  that  those  who  leave 
out  of  view  in  their  estimates  of  the  judiciousness  of 
investments,  the  accumulating  power  of  capital  at 
compound  interest,  are  very  unsafe  counsellors.  It  is 
true,  that  nobody  would  be  so  unwise  as  purposely 
to  construct  a road  or  canal,  a long  time  before  it  was 
wanted  at  all,  and  hence  so  strong  a case  as  the  one 
above  supposed,  has  probably  never  occurred.  Still, 
the  principle  here  laid  down  is  true  as  regards  every 
investment  made  in  advance,  to  the  extent  of  that 
portion  of  the  capital  that  does  not  yield  the  ordinary 
income.  A regular  interest  account  current  would 
show  the  true  amount  of  the  cost  of  the  improvement, 
and  if  reference  were  had  to  this  test  of  productive- 
ness more  frequently  than  it  is,  it  would  be  found  that 
many  investments  which  have  been  usually  consi- 
dered productive,  have  been  upon  the  whole  losing 
transactions. 

* The  present  value  of  a million  of  dollars  payable  eleven 
years  and  eight  months  hence,  is  five  hundred  thousand  dollars, 
which  of  course  would  be  the  present  /oss,  or  sinking  of  capital 
in  the  case  supposed.  If  ten  percent,  were  taken  as  the  annual 
profit  that  could  have  been  made  on  the  employment  of  the 
capital,  (a  profit  which  capital  will  earn  in  some  parts  of  the 
Western  country,)  the  result  would  of  course  be  much  more 
unfavorable  to  the  community. 


CURRENCY  AND  BANKING. 


67 


BOOK  THE  SECOND. 

OF  THE  LAWS  WHICH  REGULATE  A MIXED  CURRENCY 
COMPOSED  OF  THE  PRECIOUS  METALS,  AND  OF  PA- 
PER  CONVERTIBLE  INTO  COIN  ON  DEMAND. 

In  the  former  part  of  this  work  I pointed  out  the 
principles  by  which  a currency  composed  entirely  of 
the  precious  metals  is  regulated.  I come  now  to 
speak  of  the  laws  which  regulate  a currency  com- 
posed of  coin  and  convertible  paper,  and  here  I wish 
it  to  be  distinctly  understood,  that  by  convertible 
paper,  I mean  notes  issued  by  banks,  payable  to 
bearer  in  coin  on  demand.  Paper  money  issued  by 
governments,  like  the  paper  of  the  North  American 
colonies  before  the  revolution,  or  like  the  continental 
money  of  a subsequent  period,  or  like  the  assignats  of 
France,  or  the  actual  paper  money  of  some  of  the 
nations  of  Europe,  not  being  payable  in  coin  by  the 
issuers  at  the  pleasure  of  the  holder,  belongs  to  an- 
other category,  and  is  governed  by  laws  peculiar  to 
itself. 


CHAPTER  L 

OF  BANKS  OF  DEPOSITE,  OF  BANKS  OF  DISCOUNT  AND 
OF  BANKS  OF  CIRCULATION. 

Of  banks  there  are  three  distinct  kinds,  wholly 
different  from  each  other,  in  their  constitution,  their 
uses,  their  operations,  and  their  influence  upon  the 


68 


A TREATISE  ON 


public  prosperity,  viz.  banks  of  deposit  embanks  of  dis- 
count,  and  batiks  of  circulation,  or,  as  some  express 
it,  banks  of  issue,  of  each  of  which  I will  speak  in 
its  turn. 

bank  of  deposite  is  an  institution  established 
solely  for  the  safe  keeping  of  the  coin  and  bullion  of 
individuals,  which  would  otherwise  have  to  be  kept 
in  iron  chests  or  less  secure  receptacles,  and  for 
facilitating  mercantile  payments  by  the  transfer  upon 
its  books  by  checks  or  drafts  of  the  various  amounts 
standing  to  the  credit  of  the  depositors,  thus  saving 
the  labor  of  repeated  countings,  and  the  expense  of 
repeated  transportations  of  the  precious  metals  from 
house  to  house,  accompanied  at  the  same  time  by  a 
diminished  risk  from  fire  or  pillage,  and  a diminished 
wear  and  tear  of  the  coins  by  friction.  Such  a bank, 
it  is  manifest,  is  more  appropriate  for  a community 
using  a currency  of  coin  alone,  than  for  one  employ- 
ing a mixed  currency;  and  accordingly,  we  find  such 
a bank  as  having  formerly  existed  at  Amsterdam,  and 
at  the  present  day  at  Hamburgh,  in  which  latter  city, 
a deposite  of  standard  silver  of  the  weight  of  a marc, 
entitles  the  depositor  to  the  credit  of  an  amount 
denominated  a marc  banco,  which  is  the  unit  of  the 
currency  of  Hamburgh,  in  which  all  bills  of  exchange 
and  mercantile  debts  are  payable,  and  which  the 
party  who  holds  the  credit  may  draw  out  at  his 
pleasure  in  marcs  weight,  or  transfer  to  others.  As 
regards  the  operations  of  this  particular  species  of 
banks,  the  reader  will  perceive  that  they  add  nothing 
to  the  existing  amount  of  the  currency,  and  that  they 
take  nothing  from  it.  The  credits  on  their  books  re- 
present certain  quantities  of  bullion  ascertained  by 
weight,  placed  there  for  safe  keeping,  without  any 
authority  on  the  part  of  the  administrators  of  the  bank 
to  lend  it,  or  to  apply  it  to  any  purpose  whatever, 
until  called  for  by  its  owners,  or  transferred  by  them 
to  other  persons;  and  hence  it  is  clear,  that  such 


CURRENCY  AND  BANKING. 


69 

banks  exercise  no  influence  whatever  over  the  cur- 
rency, by  contracting  or  expanding  its  amount. 

A bank  of  discount  is  an  institution  possessing  a 
capital  in  money,  which  the  proprietors,  for  there  are 
usually  several,  associated  in  part  for  the  sake  of 
maintaining  a survivorship,  lend  to  merchants  and 
others  by  discounting  acceptances  and  promissory 
notes,  originating  in  the  sale  of  merchandise  and 
other  property,  having  short  periods  to  run.  It  also 
receives  on  deposite,  either  by  allowing  interest  or 
not,  as  the  agreement  may  be,  the  money  of  other 
people,  repayable  at  fixed  periods  or  on  demand, 
which  it  also  lends  with  its  own  capital  in  discount- 
ing commercial  securities.  Of  this  description  of 
banks,  are  all  the  establishments  in  London,  (except 
the  Bank  of  England,)  and  many  of  those  of  the  prin- 
cipal cities  on  the  continent  of  Europe  known  as 
private  bankers.  Several  bankers  of  the  same  de- 
scription, but  better  known  as  extensive  brokers,  have 
also  at  different  periods  in  New  York  and  Philadel- 
phia, carried  on  the  business  of  lending  their  own 
capitals  and  the  capitals  of  others  deposited  with 
them,  and  it  is  probable  that  in  every  commercial 
community  there  are  establishments  of  the  kind  upon 
a larger  or  a smaller  scale.  As  such  banks  do  no- 
thing more  than  lend  the  money  which  actually 
exists  in  the  community,  it  is  evident,  that  they,  like 
banks  of  deposite,  exert  no  influence  whatever  over 
the  currency,  in  expanding  or  contracting  its  amount, 
and  that  consequently  they  produce  no  effects  differ- 
ent from  those  which  would  result  if  the  same  money 
had  been  loaned  out  by  its  individual  proprietors, 
through  the  agency  of  brokers. 

Some  persons  indeed  suppose  that  where  the  money 
of  depositors  is  repayable  on  demand^  an  expansion 
of  the  currency  takes  place  to  the  whole  extent  of 
such  deposited  sums,  in  case  they  have  been  loaned 
to  others,  inasmuch  as  the  depositor  as  well  as  the 
person  to  whom  his  money  has  been  loaned,  has  each 


70 


A TREATISE  ON 


the  power  to  make  purchases  in  the  market  for  the 
same  amount,  the  right  possessed  by  the  former  to 
draw  money  out  of  the  bank,  giving  him  the  same 
command  of  funds  as  I he  actual  possession  of  money 
by  the  latter  confers  upon  him.  But  this  is  an  error, 
for,  if  the  depositor’s  money  has  been  loaned  out,  it 
can  in  no  possible  way  be  paid  back  to  him,  but  by 
the  bank’s  requiring  the  borrower  or  some  other  of 
its  debtors  to  refund  an  equal  amount,  by  which  pro- 
cess the  aggregate  mass  of  the  currency  is  preserved 
the  same  as  before.  Banks  well  administered,  do 
not,  however,  place  themselves  in  the  condition  of 
being  obliged  in  order  to  meet  the  sudden  demands 
of  depositors,  to  call  unexpectedly  on  their  debtors. 
They  keep  on  hand  an  amount  of  money  unem- 
ployed, sufficient  to  meet  any  probable  calls  that  may 
be  made  upon  them,  before  the  bills  receivable  held  by 
them  fall  due,  and  like  the  mill  pond  which  is  supplied 
with  water  from  the  stream  above,  just  as  fast  as  it  is 
discharged  through  the  mill  race  below,  they  preserve 
a uniform  level  in  the  currency.  Nor  is  the  matter 
at  all  changed  by  the  fact  that  bank  credits  or  depo- 
sites  are  transferable  by  means  of  checks,  from  the 
account  of  one  person  to  that  of  another,  for  it  is 
clear,  that  if  by  such  transfers,  one  person  becomes 
possessed  of  the  command  of  funds,  another  parts 
with  it  to  the  same  amount,  and  consequently,  there 
is  but  one  power  of  purchase  in  the  market  at  any 
one  time,  with  the  same  money. 

A bank  of  circulation  is  an  institution  established 
solely  for  the  purpose  of  lending  credit^  which  is  per- 
formed by  exchanging  its  promissory  notes  payable 
to  bearer  on  demand  in  coin,  or  giving  transferable 
credits  on  its  books,  also  payable  on  demand  in  coin, 
for  the  promissory  notes  of  individuals,  payable  at  a 
future  fixed  day,  the  latter  paying  a per  centage  per 
annum  equal  to  the  interest  on  a loan  of  capital,  for 
the  advantages  they  consider  themselves  as  enjoying 
by  dealing  in  the  market  with  the  credit  of  the  bank 


CURRENCY  AND  BANKING. 


71 


instead  of  their  own.  The  operations  of  such  a bank, 
it  will  be  perceived,  are  different  from  those  of  the  two 
preceding  ones,  inasmuch  .as  the  currency  by  the  in- 
troduction into  it  of  paper  money  and  paper  credits, 
createable  at  will,  in  addition  to  the  coin  which  be- 
fore constituted  the  entire  currency  of  the  country, 
admits  of  expansion  and  contraction,  and  conse- 
sequently  of  fluctuations  such  as  are  unknown  under 
a metallic  currency. 

In  the  nine  hundred  banks  and  branches  which 
now  exist  in  the  United  States,^  all  the  operations 
of  these  three  distinct  institutions  are  combined;  and  it 
is  owing  to  this  combination,  by  which  dissimilar 
things  are  confusedly  mixed  together,  that  the  public 
mind  has  been  led  into  so  much  error  upon  the  sub- 
ject of  banking.  An  analytical  examination  can  alone 
enable  any  one  to  understand  the  true  merits  of  this 
important  subject. 

From  the  foregoing  definitions  it  will  be  seen  that 
banks  of  deposit  and  banks  of  discount  are  of  positive 
advantage  to  every  country  in  which  they  are  estab- 
blished.  The  former  protects  the  gold  and  silver  of 
the  community  from  the  danger  of  robbery  and  fire, 
as  well  as  from  loss  by  abrasion,  as  has  already  been 
remarked,  and  at  the  same  time  greatly  facilitates 
the  operations  of  commerce  by  the  convenience  of 
payments  in  checks  instead  of  payments  in  coin. 
The  latter  keeps  the  money  of  the  community  in  con- 
stant employment  by  lending  it  to  one  borrower,  as 
fast  as  it  is  paid  back  by  another.  But  it  will  be 
readily  seen,  that  such  institutions  do  not  hold  out 
sufficient  temptations  for  their  frequent  establishment, 
as  corporations.  'Vo  maintain  a dank  of  deposite^  a 
fund  must  be  provided  by  government  or  individuals 
to  defray  its  expenses,  inasmuch  as  no  number  of 

* According  to  the  report  of  the  secretary  of  the  treasury  of 
April,  1840,  the  number  was  901,  with  a paid  up  capital  of 
near  ^360,000,000.  See  Appendix  C. 


72 


A TREATISE  ON 


persons  would  assume  the  responsibility  of  taking 
care  of  other  people’s  money,  and  of  keeping  their 
cash  accounts,  without  compensation,  and  in  regard 
to  a bank  of  discount^  it  would  scarcely  be  worth 
while  for  a company  to  become  incorporated  or  to 
pay  the  rent  of  a banking  house,  and  the  salaries  of  a 
number  of  officers,  to  do  that  which  the  individuals 
could  do  themselves  or  by  the  employment  of  brokers 
at  a much  less  expense,  or,  indeed,  at  no  expense  at 
all,  as  the  brokerage  is  usually  paid  by  the  borrowers, 
unless  a comparatively  large  amount  of  deposites 
could  be  relied  on,  at  a low  interest  or  at  no  interest 
at  all.  Banks  of  circulation  have,  therefore,  been 
resorted  to,  as  presenting  the  only  certain,  or  appa- 
rently certain,  prospects  of  emolument;  and  as  the 
credit  requisite  to  give  confidence  to  the  paper  could 
not  be  established  without  having  for  its  basis  a capi- 
tal, more  or  less  extensive,  they  have  in  every  case 
been  consolidated  with  a bank  of  discount.  To  secure 
the  popular  favor  too,  as  well  as  to  derive  a profit 
from  the  lending  of  the  money  of  others,  they  have 
also  taken  upon  themselves,  without  charge  to  the 
public,  that  part  of  the  duties  of  banks  of  deposite 
which  relates  to  the  keeping  of  cash  accounts  with 
individuals,  and  transfers  of  credits  on  their  books, 
but  not  that  part  which  guarantees  the  safe  keeping 
of  the  coin  and  bullion  of  depositors,  except  in  the 
few  cases  where  an  agreement  for  special  deposites 
is  made. 

But  hanks  of  circulation  are  themselves,  when 
properly  conducted,  and  when  their  operations  are 
confined  to  the  legitimate  objects  of  banking^  and 
when  their  liability  to  comply  with  their  contracts  is 
strictly  enforced  by  the  public,  capable  of  conferring 
benefits  upon  a country.  By  the  creation  of  paper 
money  they  enable  the  merchants  to  export  a part  of 
the  metallic  money  which  was  previously  required 
to  circulate  its  commodities,  and  thereby  convert  it 
into  active  capital,  yielding  an  annual  income  equal 


CURRENCY  AND  BANKING. 


73 


to  the  average  profits  of  trade.  The  mode  in  which 
this  is  effected,  I will  endeavor  to  illustrate  in  detail 
in  the  succeeding  chapter. 


CHAPTER  II. 

OF  THE  OPERATIONS  OF  BANKS  OF  CIRCULATION. 

In  a former  part  of  this  treatise^  it  was  shown, 
that  under  a metallic  currency,  it  is  not  possible  to 
retain  in  any  country,  for  any  length  of  time  toge- 
ther, a larger  amount  of  coin  than  that  which  is  requi- 
site to  place  its  currency  upon  a level  with  the  cur- 
rencies of  other  countries;  and  it  was  also  shown, 
that  if  by  any  extraordinary  cause  a greater  amount 
should  at  any  time  be  brought  into  any  country,  it 
would  continue  but  for  a short  time,  and  would  gra- 
dually disappear  by  exportation,  in  the  manner  there 
described,  until  the  equilibrium  should  be  restored. 

What  is  true  of  a metallic  currency,  is  equally  true 
of  a mixed  currency,  consisting  of  coin  and  paper 
exchangeable  for  coin  on  demand.  The  aggregate 
amount  of  the  two  component  parts  cannot  exceed 
for  any  great  length  of  time,  the  amount  of  coin  which 
would  circulate  if  there  was  no  paper,  as  I shall  now 
proceed  to  show.t 

Let  us  suppose  that,  in  a particular  country,  enjoy- 

* Book  I.  Chap.  4. 

f This  expression  must  be  qualified  thus.  Every  emission 
of  a paper  currency  in  any  country  drives  out  a portion  of  its 
coin,  and  augments  the  total  amount  of  the  currency  of  the 
world,  in  the  same  manner  that  an  additional  quantity  of  gold 
and  silver  from  the  mines  would  do  it;  and  hence  an  emission 
of  paper  money  any  where  must  augment  the  currency  every 
where,  after  tim®  has  been  afforded  for  the  distribution. 

7 


74 


A TREATISE  ON 


ing  a metallic  currency,  the  quantity  of  coin  requisite 
to  circulate  its  products  and  commodities,  and  to 
maintain  its  currency  upon  a level  with  the  currencies 
of  other  countries,  is  ten  rniliions  of  dollars^  and 
that  the  balance  of  trade  and  payments  is  such  at 
the  time  of  our  supposition,  that  the  exchange  is  at 
par,  A bank  of  deposit,  discount  and  circulation  is 
established  upon  the  corporate  or  joint-stock  principle, 
with  a capital  of  one  million  of  dollars  in  coin,  which 
amount  is  of  course  to  be  taken  from  the  ten  millions 
in  circulation.  We  will  suppose  this  capital  all  to  be 
paid  in  before  the  bank  commences  its  operations. 
The  effect  of  this  would  be  a temporary  pressure  for 
money,  by  withdrawing  one  million  of  dollars  from 
circulation.  This  pressure,  however,  would  be  gra- 
dually relieved,  as  the  bank  commenced  discounting, 
and  would  wholly  disappear  after  it  had  loaned  out 
a million  of  dollars.^  Now  it  is  manifest,  that  up  to 
the  period  at  which  the  loans  of  the  bank  do  not  ex- 
ceed one  million  of  dollars,  its  operations  have  been 
simply  those  of  a bank  of  discount,  for  it  has  only 
loaned  the  amount  ^of  its  capital,  that  is,  of  money 
previously  existing.  It  may  indeed,  have  issued 
notes,  or  given  credits  on  its  books  for  loans  made, 
instead  of  paying  out  the  identical  gold  and  silver 
received  from  the  stockholders;  or,  it  may  have  given 
notes,  or  credits,  on  a deposit  of  coin  for  the  conveni- 
ence of  the  public;  but  such  notes  and  credits  in  such 
cases  would  be  mere  certificates  that  corresponding 
amounts  of  gold  and  silver  were  lying  in  the  vaults 
of  the  bank,  belonging  to  the  owners  of  such  notes  or 
credits,  held  subject  to  their  order,  precisely  as  in  the 
case  of  special  deposites.  It  might  even  happen,  that 
millions  of  dollars  in  the  form  of  notes  and  credits 

* I am  aware  that  the  usual  practice  of  banks  is  to  call  in 
their  capitals  by  instalments,  and  to  lend  out  those  instalments 
as  fast  as  received,  which  is  undoubtedly  the  best  mode,  if  the 
loans  were  not  so  apt  to  be  made  to  needy  or  speculating  stock- 
holders, to  enable  them  to  pay  up  the  subsequent  instalments. 


CURRENCY  AND  BANKING. 


75 


might  be  issued  by  the  bank  in  exchange  for  specie, 
without  thus  far  exercising  one  single  prerogative  of 
a bank  of  circulation,  or  influencing  in  the  slightest 
degree  the  state  of  the  currency,  any  more  than  the 
Bank  of  Hamburgh,  already  described,  influences  the 
currency  of  that  city. 

From  this  view  of  the  subject,  how  clear  is  to  be 
seen  that  what  the  bank  has  thus  far  performed,  is 
nothing  more  than  what  the  individuals  who  own  the 
capital  of  the  bank,  could  themselves  have  performed 
more  cheaply,  quite  as  securely,  and  perhaps  more 
advantageously  to  the  public,  seeing  that  loans  to 
unskilful  and  imprudent  borrowers,  of  which  indi- 
viduals are  not  so  apt  to  be  guilty  as  corporations, 
lead  to  a diminution  of  the  wealth  of  a country, 
whether  it  result  from  injudicious  voyages,  or  from 
any  species  of  enterprise  which  converts  productive 
capital  into  properly  which  is  not  equally  productive, 
or,  from  improvident  sales  of  merchandise  to  persons 
not  entitled  to  credit.  Incorporated  or  joint  stock 
banks,  it  is  thought,  owing  to  their  directors  not  hav- 
ing a deep  personal  interest  at  stake,  and  owing  to 
their  liability  to  be  influenced  as  a board,  by  consider- 
ations which  do  not  operate  upon  individuals,  and 
especially  owing  to  the  absolute  impossibility  of  their 
devoting  any  large  share  of  their  time  to  the  investi- 
gation of  the  characters  of  all  applicants  for  loans, 
cannot,  in  the  nature  of  things,  exercise  the  same  dis- 
crimination in  the  choice  of  its  borrowers,  as  indivi- 
dual capitalists  do.* 

The  circulating  principle  is  now  put  into  opera- 

* If  it  be  objected  to  this  proposition,  that  the  losses  of  the 
banks  in  the  United  States  are  comparatively  few,  I would 
reply,  that  this  result  is  to  be  ascribed  to  the  absence  of  a gene- 
ral bankrupt  law,  which  would  prevent  those  partial  assign- 
ments for  the  benefit  of  endorsers  at  bank,  by  which  banks 
become  preferred  creditors  in  most  cases  of  insolvency,  and 
thereby  get  a larger  share  of  the  assets  of  their  debtors,  than 
other  creditors. 


76 


A TREATISE  ON 


tion  by  our  supposed  bank,  by  lending  its  credit  in 
addition  to  its  capital.  In  other  words,  without 
having  any  more  money  to  lend,  it  undertakes  to 
discount  notes  at  short  periods,  by  giving  to  the 
borrowers  not  coin,  or  notes  or  credits  absolutely 
representing  coin  in  its  vaults,  as  in  the  case  of  its 
original  loans,  but  notes  or  credits  promising  to  pay 
gold  or  silver  on  demand,  founded  upon  a presump- 
tion that  no  such  demand  will  be  made,  until  the 
notes,  in  the  discount  of  which  they  were  issued,  or 
some  of  the  other  notes  discounted  by  the  bank,  will 
be  paid,  and  thus  bring  into  its  coffers  an  equal 
amount  of  specie.  In  other  words,  the  bank  lends  its 
credit,  and  as  this  credit  is  just  as  valuable  to  any  of 
the  parties  who  are  indebted  to  tbe  bank  for  the  first 
million,  or  for  any  subsequent  sum  loaned,  as  gold  or 
silver,  any  of  them  will  be  willing  to  receive  it  in 
payment  of  debts  or  for  merchandise  sold,  as  readily 
as  coin,  and  the  notoriety  of  this  fact,  added  to  the 
right  of  conversion  on  demand,  gives  the  notes  and 
transferable  credits  of  the  bank  a circulation  with  the 
public  equivalent  to  coin.  Every  emission,  however, 
of  these  bank  notes  and  credits  is  an  augmentation 
of  the  currency,  and  depreciates  it  below  the  general 
level.*  Let  us,  for  the  sake  of  argument,  suppose 
the  amount  of  this  augmentation  to  be  extended  in  a 
given  time  to  one  million  of  dollars,  that  being  the 
sum  requisite,  we  will  further  suppose,  to  occasion 
the  degree  of  depreciation  that  must  exist  before  it  is 
profitable  to  export  coin.  The  amount  of  the  cur- 
rency will  then  be  eleven  millions  of  dollars,  that  is 

* The  depreciation  of  a currenny  when  it  takes  place  must 
necessarily  show  itself  in  reference  to  every  species  of  property 
and  commodity,  althoug^h  it  takes  longer  to  reach  some  things 
than  others,  so  as  to  occasion  a change  in  their  price.  A depre- 
ciation of  the  currency,  in  reference  to  particular  things  only, 
cannot  be  supposed,  any  more  than  a rise  of  the  tides  in  refe- 
rence to  some  particular  objects  on  the  margin  of  a river,  and 
not  to  all  others. 


CURRENCY  AND  BANKING. 


77 


to  say,  ten  millions  of  coin,  and  one  million  of  paper. 
The  effect  of  this  would  inevitably  be  what  is  called 
a plenty  of  money.  The  prices  of  all  commodities 
would  rise,  because  there  would  be  eleven  purchasers 
in  the  market,  where  before  there  were  but  ten,  or, 
what  amounts  to  the  same  thing,  because  the  former 
purchasers  would  possess  one  tenth  more  means  to 
purchase  with,  than  they  possessed  before.  This  rise 
of  prices,  operating  upon  foreign  as  well  as  domestic 
commodities,  would  lead  to  the  importation  of  addi- 
tional quantities  of  foreign  merchandise.  But  no  cor 
responding  export  of  domestic  products  would  take 
place,  on  account  of  their  artificially  high  price,  upon 
which  bills  could  be  drawn  to  pay  for  the  foreign 
imports;  and  the  consequence  would  be,  that  money 
would  be  sent  abroad  in  their  stead,  as  presenting  the 
most  profitable  species  of  export.  But  of  the  money 
in  circulation,  it  is  evident  that  nobody  would  think 
of  exporting  the  paper,  which  would  have  no  value 
abroad,  and  consequently,  all  the  exports  that  would 
take  place,  would  be  of  coin. 

The  effect  just  described  would  as  certainly  take 
place  as  that  water  would  find  its  level,  and  would 
continue  until  the  export  of  coin  was  equal  to  the 
amount  of  the  paper  issued,  that  is,  to  one  million  of 
dollars,  when  the  level  would  be  again  restored, 
owing  to  the  fact  of  the  aggregate  of  the  coin  and 
paper  united  being  only  ten  millions  of  dollars,  that  is, 
nine  millions  of  coin  and  one  million  of  paper.*  Fur- 
ther emissions  of  bank  notes  or  credits  might  then 
take  place  with  precisely  the  same  results,  and  pro- 
vided that  the  extent  to  which  the  issues  are  carried 
is  not  so  great  as  to  drive  out  of  the  country  too  great 
a portion  of  the  metallic  currency,  by  which  the 
convertibility  of  the  paper  into  coin  in  case  of  a sud- 

* Strictly  speaking,  the  export  would  not  be  quite  equal  to  the 
amount  of  the  paper  issued,  for  the  reason  assigned  in  the  second 
note  to  this  chapter,  page  73. 

7* 


78 


A TREATISE  ON 


den  panic  occasioned  by  foreign  war  or  domestic 
disturbance,  or  by  fear  of  insolvency,  might  be  en- 
dangered, the  operations  of  the  bank  are  decidedly 
beneficial  to  the  country.  It  has  disengaged  from 
a comparatively  unproductive  employment,  a capital 
capable  of  producing  an  annual  profit  to  the  nation 
equal  to  the  average  profits  of  capital,  or,  in  other 
words,  has  substituted  an  expensive  instrument  of 
commerce  by  one  costing  less.  And  yet,  by  this 
operation,  no  permanent  depreciation  of  the  currency 
takes  place,  because  the  total  quantity  of  coin  and 
paper  united  is  only  equal  to  the  quantity  of  coin  that 
would  have  circulated  had  there  been  no  bank. 

From  these  positions  two  conclusions  are  self- 
evident:  firsts  that  banks  of  circulation  are  only 
beneficial  to  a country  when  they  occasion  the 
exportation  of  coin;  and  secondly^  that  paper  is  only 
beneficial  when  its  quantity  does  not  exceed  the 
quantity  of  coin  which  has  been  removed  from  the 
currency  by  exportation.  The  actual  extent  to 
which  this  substitution  vnay  take  place  with  safety 
to  a banking  system  is  a matter  which  cannot  be 
determined  by  any  fixed  proportions.  Some  persons 
fancy  that  the  extent  to  which  a bank  may  loan 
without  danger  of  reaction  depends  entirely  upon  the 
extent  of  its  capital,  and  reason  thus:  if  a bank  with 
one  million  of  dollars  capital  can  with  safety  loan  a 
million  and  a half,  which  is  fifty  per  cent,  increase, 
one  with  a capital  of  ten  millions  of  dollars  can  loan 
to  the  extent  of  fifteen  millions.  Others  imagine  that 
the  power  of  expansion  in  a bank  always  bears  a 
fixed  proportion  to  the  average  amount  of  its  depo- 
sites  and  circulation;  whilst  others  again  entertain 
the  idea  that  it  depends  upon  the  amount  of  coin  it 
has  in  its  vaults,  and  that  if  this  be  large,  the  amount 
of  its  issues  may  be  proportionally  large.  All  these 
hypotheses,  however,  are  fallacious.  The  real  truth 
is,  as  has  been  shown,  that  the  channels  of  circula- 
tion will  only  hold,  without  depreciation^  a certain 


CURRENCY  AND  BANKING. 


79 


quantity  of  paper  in  addition  to  the  quantity  of  coin 
that  must  needs  exist  as  the  basis  of  the  mixed  cur- 
rency, and  this  is  equally  the  case  whether  the  paper 
be  issued  by  one  bank  or  by  one  thousand.  All 
attempts  to  increase  that  quantity  permanently  be- 
yond the  quantity  requisite  to  preserve  an  equiva- 
lency with  the  general  level,  must,  in  the  nature  of 
things,  be  futile.  If  the  channels  are  made  to  over- 
flow, depreciation  of  the  whole  mass  (for  where  con- 
vertibility exists  the  coin  is  involved  in  the  depre- 
ciation in  common  with  the  paper)  will  necessarily 
take  place,  followed  by  an  exportation  of  coin  as  a 
necessary  effect  from  a cause,  and  all  redundant  issues 
of  notes  will  return  upon  the  issuers  for  payment^ 
with  the  same  unerring  certainty  as  the  fabled  stone 
of  Sysiphus  rolled  back  upon  the  wretched  struggler. 
It  may,  however,  be  here  remarked,  that  the  possible 
case  might  occur  of  a favorable  balance  of  trade 
existing  at  the  same  time  that  an  expansion  of  the 
currency  has  taken  place,  the  consequence  of  which 
would  be,  that  the  former,  by  occasioning  a low  rate 
of  exchange,  would  arrest  the  tendency  of  the  depre- 
ciated currency  to  relieve  itself  by  exportation.  But 
such  a state  of  things  could  not  long  continue,  and  it 
is  merely  referred  to  as  presenting  one  of  the  phe- 
nomena which  we  occasionally  witness,  and  which 
sometimes  puzzle  the  heads  of  superficial  reasoners 
so  much  that  they  deny  the  existence  of  all  fixed 
principles  in  political  economy. 

There  is,  however,  one  circumstance  connected 
with  the  corrective  power  of  exportation,  which  is  of 
vast  importance,  and  which  renders  the  paper  cur- 
rency of  the  United  States  more  liable  to  excessive 
depreciation  than  that  of  any  European  country.  I 
allude  to  the  effect  produced  by  a war  with  any  pow- 
erful maritime  nation,  which  by  augmenting  the  rates 
of  freight  and  insurance  on  specie,  prevents  the  ap- 
plication of  the  remedy  against  over  issues  by  the 
banks,  at  as  early  a stage  of  depreciation  as  would 


80 


A TREATISE  ON 


take  place  in  time  of  peace.  Thus  in  a time  of  peace, 
one  per  cent,  would  cover  those  charges  between 
North  America  and  Europe,  whereas  in  a lime  of 
war,  five  or  ten  per  cent,  might  be  required,  the  in- 
evitable result  of  which  would  be,  that  the  paper  cur- 
rency, although  convertible  on  demand  into  coin, 
might  be  depreciated  to  the  extent  of  five  or  ten  per 
cent,  below  the  general  level,  and  foreign  bills  of  ex- 
change might  rise  to  that  extent  above  the  real  par, 
before  the  merchants,  having  remittances  to  make, 
would  find  it  advantageous  to  ship  specie,  and  con- 
sequently before  any  reaction  would  be  felt  by  the 
banks.  This  fact  ought  to  have  weight  Avith  our 
public  men,  as  being  one  of  the  most  fatal  of  the 
elements  which  make  up  the  aggregate  of  national 
suffering,  arising  from  a state  of  war,  as  may  be  well 
remembered  by  those  who  witnessed  the  suspension 
of  specie  payments  in  1814  during  our  war  with 
England,  and  its  disastrous  consequences. 


CHAPTER  III. 

OF  THE  PRINCIPLES  BY  WHICH  THE  PROFITS  OF 
BANKS  OF  CIRCULATION  ARE  DETERMINED. 

From  what  has  been  said  in  the  preceding  chapter, 
how  clearly  is  it  to  be  perceived,  that  the  profit  to  be 
derived  from  supplying  the  paper  currency  of  a coun- 
try, is  a limited  amount^  and  that  if  it  be  divided 
amongst  a great  number  of  banks,  and  distributed 
over  the  surfaces  of  many  large  capitals,  its  propor- 
tionate rate  must  be  very  small.  To  make  this  mat- 
ter, however,  more  plain,  for  I consider  a correct  view 
of  this  branch  of  the  subject  as  all-important  in  over- 
throwing the  present  errors  of  our  banking  system 


CURRENCY  AND  BANKING. 


81 


I will  illustrate  it  by  reference  to  the  case  of  the  same 
country,  which  was  above  supposed  to  require  a cir- 
culating medium  of  ten  millions  of  dollars. 

Without  pretending  to  determine  the  precise  ex- 
tent to  which  its  coin  might  be  safely  substituted  by 
paper,  I will  suppose,  for  the  sake  of  argument,  that 
one  half  of  the  former  shall  be  exported,  and  that 
consequently  the  currency  consists  of  five  millions  of 
coin  and  five  millions  of  paper.  Under  this  state  of 
things,  the  bank  would  be  drawing  interest  on  a sum 
five  times  as  large  as  its  capital,  even  allowing  that 
it  retained  a sum  equal  to  its  whole  capital  of  a mil- 
lion in  its  vaults  in  coin,  to  meet  occasional  demands. 
The  profits  of  its  business  would  therefore  be  very 
great  on  account  of  the  small  capital  of  which  it  was 
the  income,  and  the  consequence  would  no  doubt  be, 
as  soon  as  the  secret  should  become  known  to  others, 
that  a second  bank  would  be  established. 

Few  of  the  projectors,  however,  of  this  nev7  bank 
would  probably  believe  that  the  great  profits  made 
by  the  original  bank  were  the  result  of  a monopoly, 
and  that  they  would  not  have  been  any  greater  in 
absolute  amount,  if  its  capital  had  been  five  millions 
instead  of  one;  but  under  delusive  notions  that  the 
same  per  centage  of  profit,  or  something  near  it, 
would  attach  to  a large  capital  as  to  a small  one, 
they  would  probably  establish  their  new  bank  with 
a capital,  let  it  be  supposed,  of  two  millions  of  dol- 
lars. Now  to  make  a proportionate  profit  equal  to 
that  enjoyed  by  the  original  bank,  paper  must  be 
issued  to  the  amount  of  ten  millions,  and  the  bank 
accordingly  commences  its  operations  by  a profusion 
of  loans.  But  the  channels  of  circulation  are  already 
full  of  the  paper  of  the  old  bank,  and  there  is  no  room 
for  any  more.  Issues,  however,  go  on  until  money 
becomes  plenty,  and  the  currency  becomes  depre- 
ciated below  the  general  level,  as  in  the  case  of  the 
original  bank.  Prices  of  all  commodities  rise;  foreign 
merchandise,  by  its  high  price,  holds  out  inducements 


82 


A TREATISE  ON 


for  importation;  domestic  products  become  too  dear 
for  exportation;  bills  of  exchange  rise,  because^  the 
demand  for  them  to  pay  for  foreign  commodities  in- 
creases faster  than  the  supply;  and  as  soon  as  their 
price  in  the  market  exceeds  the  amount  of  the  ex- 
pense of  transmitting  gold  and  silver  abroad,  a portion 
of  the  remaining  five  millions  of  coin  will  be  exported. 
Then  is  the  new  bank  first  reminded  of  its  mistaken 
views.  Its  notes  return  upon  it  for  payment  in  coin, 
to  be  sent  out  of  the  country,  and  its  neighbor,  too, 
the  old  bank,  which  has  five  millions  of  paper  in  cir- 
culation, feels  the  effects  of  this  reaction,  and  both  are 
obliged  to  call  in  a part  of  their  loans,  in  order  to 
avoid  a worse  state  of  things.  The  consequences 
would  be,  a general  scarcity  of  money,  and  a tempo- 
rary commercial  embarrassment.  The  result,  how- 
ever, would  be  found  to  be,  that  as  five  millions  of 
dollars  was  the  total  amount  of  paper  that  could  be 
kept  in  circulation  without  depreciation,  the  profits 
of  furnishing  this  amount  are  now  to  be  divided  be- 
tween two  banks  instead  of  being  monopolised  by 
one,  and  in  such  proportions  as  the  particular  influ- 
ence or  management  of  each  may  be  able  to  establish. 

A similar  effect  precisely  would  follow  the  creation 
of  every  additional  bank:  and  should  the  number 
increase  to  five  or  ten,  the  aggregate  profit  would 
still  be  the  same;  for  although  the  paper  currency  of 
five  millions  would  be  occasionally  augmented  in 
quantity  as  each  bank  commenced  its  operations,  as 
has  been  shown,  yet  in  the  long  run  it  would  settle 
down  at  the  old  amount.  But,  notwithstanding  the 
certainty  of  this  fact,  there  would  still  be  a perpetual 
endeavor  on  the  part  of  some  of  these  banks  to  get 
the  largest  share  of  the  profits  of  this  supply  of  the 
paper  currency  by  extraordinary  issues.  This,  how- 
ever, it  could  not  accomplish,  if  the  public  would 
always  insist  upon  strict  convertibility,  and  if  other 
banks  were  true  to  their  interests  by  making  a daily 
demand  upon  each  other  for  the  payment  of  balances^ 


CURRENCY  AND  BANKING. 


83 


occurring  in  their  mutual  transactions,  not  in  paper, 
but  in  coin; 

And  here  I will  remark,  that  precisely  as  each 
bank  of  a city  thus  checks  the  issues  of  its  neigh- 
bors, the  united  banks  of  a city  check  the  issues  of 
other  neighboring  cities.  If  the  currency  of  a par- 
ticular city,  Philadelphia,  for  example,  were  to  be- 
come depreciated  below  that  of  New  York,  the  effect 
would  immediately  be  shown  by  a rise  in  the  former 
city  in  the  prices  of  stocks,  bills  of  exchange,  and 
other  securities  of  easy  transmission,  of  which  the 
consequence  would  be,  that  amounts  of  these  would 
be  sent  to  Philadelphia  for  sale,  and  by  that  means 
the  banks  of  that  city  would  be  brought  into  debt  to 
the  banks  of  New  York,  which  would  call  for  pay- 
ment of  the  balance  m coin,  and  that  would  lead  to 
a contraction  of  the  currency,  until  the  equilibrium 
would  be  again  restored.  It  is  precisely  upon  the 
same  principle  that  the  general  currency  of  the 
country  is  corrected  by  the  influence  of  those  of 
foreign  countries,  and  therefore,  if  any  obstruction  to 
the  free  exportation  of  coin  should  at  any  time  exist, 
either  by  the  timidity  of  the  holders  of  bank  notes  to 
demand  their  rights,  or  by  the  laws  of  a country,  or 
by  the  exciting  of  public  odium  against  the  exporters, 
either  by  banks,  politicians,  or  otherwise,  so  as  to 
deter  them  from  exporting  when  it  is  profitable  for 
them  to  export,  the  currency  must  inevitably  sustain 
depreciation,  and  mischief  must  be  the  result. 

In  connection  with  this  subject,  it  may  here  he  also 
remarked,  that  should  the  time  ever  arrive,  when  all 
the  principal  commercial  countries  of  the  world  should 
adopt  the  circulating  banking  system,  the  whole  of 
the  benefits  resulting  from  the  substitution  of  paper 
money  for  coin  will  vanish.  The  only  reason  why 
this  substitution  is  now  productive  of  profit  to  any 
country  where  banks  of  circulation  exist,  is,  that 
there  are  other  countries  in  which  there  is  no  )>aper 
money,  and  which  are  willing  to  give  other  commo- 


84 


A TREATISE  ON 


dities  for  gold  and  silver.  But  only  let  them  all 
adopt  the  policy  of  issuing  bank  notes  in  an  equal 
proportion,  so  as  to  preserve  their  respective  cur- 
rencies upon  the  same  level,  and  it  will  at  once  be 
seen  that  the  precious  metals  will  not  flow  out  from 
either,  and  that  the  inevitable  consequence  will  be, 
that  the  prices  of  commodities  and  property  will  be 
increased  all  over  the  world,  whilst  not  a dollar  will 
be  added  to  their  value.  Every  movement  made  in 
Europe  towards  the  establishment  of  banks  of  circu- 
lation, is  a step  towards  that  terrible  consummation, 
when  no  domestic  or  foreign  checks  will  longer  exist 
to  prevent  those  unlimited  expansions,  which  cannot 
possibly  exist  without  alternate  contractions,  subver- 
sive of  the  industry  and  prosperity  of  the  whole 
civilised  world. 


CHAPTER  IV. 

OF  THE  SAFEST  AND  MOST  PROFITABLE  MODE  OF 
INVESTING  THE  CAPITALS  OF  BANKS  OF  CIRCULA- 
TION. 

It  has  been  shown  that  banks  of  discount  upon  the 
corporate  or  joint-stock  principle  could  not  generally 
be  conducted  to  a profit,  seeing  that  the  income  they 
derive  from  the  loan  of  capital  would  not  be  as  great 
as  the  income  which  the  individual  proprietors  could 
have  derived  from  lending  their  money  without  the 
agency  of  salaried  officers  and  the  rent  and  other  ex- 
penses of  a banking. house.  It  has  also  been  shown, 
that  for  the  same  reason,  banks  which  perform  the 
double  function  of  banks  of  discount  and  banks  of 
circulation,  can  make  no  banking  profit  by  the  mere 
lending  of  their  capitals.  All  their  profits  are  derived 


CURRENCY  AND  BANKING. 


85 


from  lending  their  credit;  for,  although  where  the  rate 
of  interest  is  six  per  cent,  per  annum,  the  practice  of 
taking  the  interest  beforeliand,  and  charging  sixty- 
four  days  discount  for  the  use  of  the  money  for  sixty- 
three  days,  as  in  Philadelphia  and  other  places,  the 
actual  rate  received  is  per  cent.,  yet  the  additional 
four-tenths  of  one  per  cent,  do  not  pay  the  proportion 
of  the  whole  expenses  of  the  bank,  which  the  amount 
of  its  capital  bears  to  the  whole  amount  of  its  loans. 
Indeed,  a little  reflection  will  enable  any  one  to  per- 
ceive, that  not  only  do  all  the  profits  beyond  legal 
interest  of  a bank  of  discount  and  circulation,  where 
it  is  successful,  arise  from  the  loan  of  its  credit,  but 
those  profits  must  besides  furnish  a fund  for  making 
up  the  loss  incident  to  the  lending  of  its  capital. 
Thus,  if  we  suppose  a bank  of  discount  and  circula- 
tion with  a capital  of  one  million  of  dollars,  having 
loans  out  to  the  amount  of  one  million  and  a half, 
and  the  whole  annual  expenses  of  the  bank  to  be 
fifteen  thousand  dollars,  or  one  per  cent,  upon  the 
amount  of  the  loans,  it  will  be  seen  that  two  thirds 
of  this  expense  attaches  to  the  lending  of  the  capital, 
and  only  one  third  to  the  lending  of  the  credit  of  the 
bank,  so  that  if  separate  accounts  were  kept  of  the 
expenses  of  each  department  of  the  institution,  they 
would  show  a gain  upon  the  lending  of  credit  and  a 
loss  upon  the  lending  of  capital.  If,  therefore,  the 
whole  operation  be  profitable,  the  profit  must  arise 
from  the  lending  of  credit,  and  must  consist  of  what 
remains  after  defraying  the  loss  incident  to  the  lend- 
ing of  the  capital,  which  is  precisely  equal  to  the 
excess  of  the  expenses  of  bank  agency  in  loans  over 
those  of  private  agency,  deducting  the  four-tenths 
of  one  per  cent,  which  a bank  charges,  more  than 
individuals  would  have  a right  to  charge  by  law  on 
loans.^  At  all  events,  no  one  will  pretend  that  banks 

* The  banks  of  Pennsylvania,  and  perhaps  most  other  states, 
are  authorised  to  charge  one  per  cent,  interest  for  sixty  days, 
8 


86 


A treatisp:  on 


make  more  by  the  loan  of  their  capitals  than  indi- 
viduals could  make,  and  even  on  this  admission  it  is 
apparent  that  all  the  peculiar  profits  of  what  is 
usually  called  banking  arise  from  the  loan  of  credit.^ 

Now,  if  these  positions  be  true,  it  follows  as  a 
necessary  consequence,  that  the  true  policy  of  banks 
of  discount  and  circulation  is,  to  adopt  the  most 
economical  and  safe  mode  of  lending  their  capitals, 
so  as  to  lose  as  little  as  possible  by  the  operation. 
Long  loans,  it  is  manifest,  are  attended  with  less 
expense  than  short  ones,  and  the  security  of  real 
estate  or  public  funds  is  safer  than  the  promissory 
notes  of  individuals.  One  officer  can  superintend 
loans  on  mortgage  or  investment  in  public  secu- 
rities, collect  the  interest,  and  keep  all  the  accounts, 
as  easily  as  four  could  attend  to  the  discounting  of  an 
equal  amount  of  notes  at  ninety  days;  and  as  to  the 
difference  between  the  security  of  mortgages  and  pub- 
lic stocks,  and  private  paper,  no  one  can  fail  to  see 
the  superiority  of  the  former. 

From  these  views,  it  is  evident  that  banks  of  circu- 
lation derive  no  benefit  whatever,  but  rather  injury, 
from  having  capitals  to  lend.  Why  then,  it  may  be 
asked,  should  they  be  connected  with  banks  of  dis- 
count? For  no  other  reason  than  to  give  credit  to 
their  notes,  which  would  not  be  allowed  to  get  into 
circulation  as  money  unless  the  public  was  assured 
of  a responsible  endorser.  The  bank  of  discount  thus 
becomes  the  guarantee  of  the  bank  of  circulation,  and 
as  the  solidity  of  the  guarantee  is  what  the  public 
most  look  after,  how  plain  is  it  to  be  seen  that  a capi- 
tal loaned  upon  real  estate  or  state  stocks  would  be 
a better  security  against  insolvency  than  any  promis- 
sory notes  or  bills  of  exchange  could  possibly  be.  In 

and  to  receive  it  in  advance.  Individuals  can  only  charge  six 
per  cent,  per  annum,  without  the  right  to  receive  it  before  hand, 
but  the  law  in  this  case  is  seldom  observed. 

* Except  in  those  cases  where  deposites  constitute  a large 
portion  of  the  amount  loaned  by  the  bank. 


CURRENCY  AND  BANKING. 


87 


other  words,  a bank  Avith  a capital  of  one  million 
of  dollars  loaned  upon  well  secured  mortgages  and 
state  stocks  of  undoubted  solidity  would  offer  a better 
security  for  the  payment  of  its  notes,  than  one  with  an 
equal  capital  loaned  upon  discounted  notes  and  bills. 

And  not  only  is  this  true;  not  only  would  the  credit 
of  its  notes  be  more  perfectly  secured  as  far  as  the 
public  is  concerned,  but  the  interests  of  the  stock- 
holders themselves  would  be  very  greatly  promoted 
by  such  a mode  of  lending  the  capital,  first  by  a 
diminution  in  the  expenses  of  management,  and 
secondly  by  a diminution  of  the  risk  of  lending. 

But  this  is  not  all.  The  individual  borrowers 
themselves,  of  the  capitals  of  banks,  would  be  greatly 
benefitted  by  such  a system.  I'hey  would  obtain 
money  at  six  per  cent,  per  annum,  instead  of  six  per 
cent,  and  four-tenths;  they  would  be  able  to  borrow 
for  such  long  periods  at  once,  by  giving  the  requisite 
security,  as  would  give  time  for  the  winding  up  of 
the  voyage  or  operation  for  the  conducting  of  which 
the  loan  was  required,  instead  of  asking  for  rene^wals 
every  sixty  or  ninety  days,  always  accompanied  with 
a degree  of  uncertainty,  and  generally  attended  with 
the  additional  tax  of  a loss  of  interest  upon  a balance 
in  bank,  tacitly,  if  not  expressly  required  as  the  price 
of  a continued  accommodation;  amounting,  probably, 
to  as  much  as  with  the  four-tenths  of  one  per  cent, 
above  referred  to,  may  be  equal  to  one  per  cent. 

To  this  it  may,  perhaps,  be  objected,  that  all  bor- 
rowers have  not  real  estate  or  state  stocks  to  pledge 
for  loans  of  money.  Farmers  and  manufacturers  may 
have  lands,  houses,  and  factories,  but  merchants  may 
not;  and,  at  all  events,  it  would  deprive  of  the  power 
of  borrowing  capital  of  banks  all  those  persons  who 
have  no  real  estate  or  state  stocks  to  offer  as  security. 
This  is  perfectly  true,  and  it  is  precisely  what  ought 
to  be,  for  banks  are  bound  to  obtain  as  good  security 
on  the  loan  of  their  capitals  as  their  individual  pro- 
prietors would  demand;  and  we  all  know  that  indi- 


88 


A TREATISE  ON 


vidaals  rarely  lend  their  capitals  for  long  periods  at 
simple  interest,  as  permanent  investments,  upon  the 
mere  personal  security  of  persons  engaged  in  trade, 
or  hazardous  enterprises.  If  they  do  occasionally 
depart  from  this  rule,  it  is  because  they  have  such  a 
knowledge  of  the  affairs  of  the  borrower  as  to  render 
his  personal  promise  equivalent,  in  their  estimation, 
to  a mortgage;  and  at  all  events  they  have  a right  to 
risk  their  own  properly  if  they  choose,  but  as  banks 
of  discount  stand  towards  the  public  in  the  position  of 
guarantees  to  the  banks  of  circulation,  with  which 
they  are  united,  they  act  unwisely  if  they  accept  of 
any  but  the  most  perfect  security,  such  as  that  af- 
forded by  mortgage  on  real  estate,  or  by  an  invest- 
ment in  undoubted  public  securities. 

What  has  been  said,  let  it  be  remembered,  relates 
only  to  the  loans  of  its  capital  by  a bank,  and  I trust 
that  the  reader  will  not  fail  to  perceive  the  justice  of 
the  remarks.  He  will  at  least  perceive,  that  as  far  as 
the  lending  of  the  capital  of  a bank  goes,  whether  the 
loans  be  made  for  sixty  days  or  twelve  months,  whe- 
ther they  be  made  on  mortgage  or  to  the  government, 
or  upon  promissory  notes  and  bills  of  exchange,  the 
elTect  upon  the  currency  is  precisely  the  same.  Nei- 
ther mode  makes  money  more  or  less  abundant  than 
the  other;  inasmuch  as  that  which  has  been  loaned 
is  precisely  the  amount  which  previously  existed  in 
the  community,  and  is,  indeed,  the  precise  amount 
which  the  individual  stockholders  of  the  bank  would 
have  had  to  loan,  had  they  not  associated  together  as 
a bank.  The  question,  then,  is  a simple  question  as 
to  the  borrowers,  and  whilst  those  who  could  not 
give  landed  security  for  loans  might  think  themselves 
deprived  of  a right  to  which  they  are  entitled;  yet  it 
is  evident,  that  the  holders  of  bank  notes  and  bank 
credits,  and  the  owners  of  the  capital,  and  all  the  rest 
of  the  community,  who  are  to  a man  interested  in 
the  safe  employment  of  the  capital  ivhich  belongs 
to  the  whole  society^  are  manifestly  benefitted.  In 


CURRENCY  AND  BANKING. 


89 


truth,  however,  borrowers  have  no  rights  as  regards 
the  capital  of  a bank  which  they  do  not  possess  as 
regards  the  capital  of  an  individual;  and  any  one 
would  see  how  preposterous  it  would  be  for  a bor- 
rower of  money  to  insist  with  an  individual  upon  his 
ri^hl  to  borrow  his  capital  upon  a promissory  note, 
when  the  individual  should  refuse  to  lend  in  any 
other  way  than  upon  mortgage. 

I am  aware  that  a plausible  objection  to  this  rea- 
soning might  be  raised  with  reference  to  the  banking 
system  as  carried  on  in  the  United  States,  by  assert- 
ing the  fact,  that  were  it  not  for  the  demand  of  bor- 
rowers who  have  no  real  estate  to  offer  as  security, 
there  would  probably  not  be  employment  for  one 
half  the  banking  capital  now  existing  in  the  United 
States.  This,  however,  proves  nothing  more  than 
that  there  is  in  existence  double  the  amount  of  bank- 
ing capital  required  to  sustain  the  credit  of  the  paper 
currency,  which  I have  shown  to  be  the  only  advan- 
tage derived  from  bank  capitals^  seeing  that  as  far  as 
the  capitals  go,  nobody  gains  by  their  amount  being 
loaned  through  corporate  agencies,  rather  than  by 
their  individual  proprietors.  If  the  fact  be  that  nearly 
all  the  capitals  of  all  our  banks  are  loaned  out  upon 
personal  security  in  the  discounting  of  promissory 
notes  and  bills  of  exchange,  it  is  quite  clear  that  the 
stockholders  are  not  as  secure  from  loss,  and  that 
their  profits  are  not  as  great,  as  they  would  be  if  one 
half  their  capitals  were  returned  to  them,  and  loaned 
out  by  themselves  individually  upon  landed  security. 
There  can  be  no  doubt  that  in  the  United  States 
great  mischief  results  from  so  large  a portion  of  the 
debts  of  the  community  being  in  the  form  of  promis- 
sory notes  discounted  by  the  banks,  instead  of  perma- 
nent loans,  owing  to  the  temptation  of  banks  to  ex- 
pand, arising  from  the  broad  field  upon  which  they 
suppose  they  can  contract  in  case  of  need,  which  is 
much  larger  than  it  would  be  if  all  their  capitals  were 
loaned  out  upon  permanent  securities.  I say,  sup- 
8^ 


90 


A TREATISE  ON 


pose  they  can  contract,’^  because  the  fact  of  their  being 
able  to  contract  at  all  times,  may  be  considered  as 
fully  disproved  by  the  stoppages  of  payment  in  1837 
by  all  the  banks,  and  in  1839  by  all  the  banks  to  the 
south  of  New  York. 


CHAPTER  V. 

OF  THE  LEGITIMATE  OPERATIONS  OF  BANKS  OF 
CIRCULATION. 

Having  disposed  of  the  question  of  the  safest  mode 
of  employing  the  capitals  of  banks,  I now  come  to 
the  question,  what  is  the  legitimate  function  of  a 
bank  of  circulation,  considered  in  its  distinctive  char- 
acter as  a bank  without  any  capital  to  lend? 

The  manifest  answer  to  this  question  is,  to  lend  its 
credit  in  such  a way  as  to  produce  the  greatest  pos- 
sible benefit  to  itself  without  injuring  the  public. 

The  mode  in  which  a bank  lends  its  credit  is  to 
exchange  its  own  promissory  notes  payable  on  de- 
mand, for  the  promissory  notes  or  acceptances  of 
individuals  payable  at  a future  period,  deducting  the 
interest  for  the  time  which  the  latter  have  to  rim 
before  they  become  due,  and  allowing  no  interest  on 
its  own  notes  for  the  time  that  may  elapse  before 
their  payment  is  demanded.  In  making  this  ex- 
change, the  profits  of  the  bank  depend  entirely  upon 
the  length  of  time  that  its  notes  remain  abroad,  and 
its  ability  to  meet  them  depends  of  course  upon  the 
length  of  time  which  the  notes  have  to  run  in  ex- 
change for  which  they  were  issued.  If  bank  notes 
be  issued  only  upon  the  principles  laid  down  in  a 
former  chapter  as  mere  substitutes  for  coin  exported, 
and  without  augmenting  in  any  degree  the  amount 


CURRENCY  AND  BANKING. 


91 


of  the  currency,  they  will  remain  in  permanent  cir- 
culation, unless  in  case  of  a panic,  or  discredit,  which 
occasions  a run  upon  the  bank,  and  will  constitute  a 
source  of  permanent  pro6t;  for  although  some  of 
them  may  be  constantly  returning  in  payment  of 
debts,  yet  they  are  sent  out  again  as  fast  as  they  come 
in,  in  the  discount  of  other  bills  or  acceptances.  As 
to  the  length  of  time  which  the  discounted  paper 
should  have  to  run,  experience  must  decide,  the  bank 
having  regard  to  the  possibility  of  a panic,  as  well  as 
to  the  action  of  other  neighboring  banks,  seeing  that 
an  over-issue  by  anyone  of  them,  by  depreciating  the 
currency,  may  occasion  a temporary  reaction  upon 
other  banks  as  well  as  itself,  and  disturb  even  those 
that  are  the  most  prudently  conducted.  The  prac- 
tice of  the  banks  in  the  United  States  prior  to  the  war 
of  1812,  was  generally  to  limit  their  loans  to  paper 
not  having  more  than  sixty-three  days  to  run.  Since 
that  time,  loans  have  been  made  at  longer  periods, 
extending  sometimes  even  to  four  and  six  months, 
and  to  this  circumstance  is  no  doubt  to  be  ascribed, 
in  a great  degree,  the  frequent  revulsions  that  have 
since  taken  place  in  our  currency,  and  especially  that 
which  eventuated  in  a general  stoppage  of  specie 
payments  in  May,  1837.*  It  must  be  manifest,  that 
the  power  of  a bank  to  meet  any  extraordinary  emer- 
gency must  depend  upon  the  command  it  has  over 
its  loans,  and  if  the  experience  of  other  countries  can 
be  considered  as  any  guide,  that  of  England  and 
France  may  both  be  referred  to,  where  discounts  of 
paper  having  more  than  sixty  or  a hundred  days  to 
run,  are  \vholly  discountenanced.  A similar  practice 

* To  this  circumstance  may  also  be  mainly  ascribed  the  prac- 
tice which  of  late  years  has  generally  prevailed  of  long  credits 
on  merchandise  sold.  Eight  months  are  now  given,  where  for- 
merly only  four  were  required,  the  effect  of  which  is  to  double 
the  stocks  of  dealers  who  buy  on  credit,  and  to  double  the 
amount  of  outstanding  debts.  ' When  long  notes  are  discounted 
by  banks,  long  credits  wall  be  given  by  the  merchants. 


92 


A TREATISE  ON 


in  the  United  States  could  not  fail  to  be  productive 
of  much  benefit  to  the  community,  as  a means  of  cor- 
recting with  promptness  any  accidental  expansion  of 
the  currency. 

But  in  order  to  render  legitimate  the  operations  of 
a bank  of  circulation,  its  loans  should  not  only  be  for 
short  periods,  but  should  be  confined  solely  to  the  dis- 
counting of  what  is  called  business  paper ^ that  is,  pro- 
missory notes  and  acceptances  received  by  the  holders 
for  merchandise  and  property  sold.  If  none  others 
were  discounted,  the  expansion  of  the  paper  system 
would  only  be  in  proportion  to  the  expansion  of  busi- 
ness. When  this  was  extended,  so  as  to  call  for  more 
currency,  as  at  particular  seasons  of  the  year,  more 
currency  would  be  created;  and  when  business  was 
diminished,  as  at  other  seasons,  so  as  to  require  less 
currency,  the  excess  would  be  absorbed  by  the  pay- 
ments made  back  to  the  banks.  In  these  operations, 
the  level  of  the  currency  would  not  be  disturbed,  so 
as  to  produce  a depreciation;  for  although  there 
would  at  times  be  a greater  quantity  of  bank  notes  in 
existence  than  at  other  times,  yet  this  quantity  would 
be  in  exact  proportion  to  the  increased  demand, 
arising  from  an  increase  of  transactions.  Thus  would 
the  elasticity  of  the  banking  principle  accommodate 
itself  to  the  state  of  commercial  wants.  Money  would 
always  be  procurable,  when  it  was  really  wanted, 
and  it  would  never  be  so  plenty  as  to  depreciate  the 
currency.  The  holders  of  real  paper  could  always 
get  it  discounted,  and  even  those,  whose  sales  of  mer- 
chandise to  the  country  should  not  put  them  in  pos- 
session of  notes  or  acceptances  payable  by  resident 
debtors,  could  also,  without  any  violation  of  the  legi- 
timate principles  of  banking,  get  discounts  for  short 
eriods  on  the  hypothecation  of  such  foreign  paper. 


But  it  is  absolutely  necessary  upon  sound  bankina: 
principles,  that  no  paper  except  that  received  for 
property  sold  should  be  discounted.  Fictitious  or 
accommodation  notes  are  not  as  safe  investments  for 


CURRENCY  AND  BANKING. 


93 


a bank  as  real  notes.  A real  note  given  by  A to  B., 
for  five  thousand  dollars,  for  a hundred  hogsheads  of 
sugar  sold  and  delivered,  endorsed  by  the  latter,  and 
discounted  by  a bank,  is  guaranteed  by  B.,  who  has 
five  thousand  dollars  in  cash,  the  proceeds  of  the  note, 
less  the  discount,  and  by  A.  who  has  five  thousand 
dollars  worth  of  sugar.  Of  this  there  is  no  doubt.  An 
accommodation  note  drawn  by  C.  to  D.  may  have  upon 
it  two  names  apparently  as  solvent,  but  there  is  no 
certainty  that  the  two  together  possess  any  thing 
more  than  the  sum  loaned  by  the  bank.  And  this  is 
not  all.  The  discounting  of  a real  note  is  merely 
anticipating  a capital  previously  existing,  whereas 
the  discounting  of  an  accommodation  note  is  lending 
capital  to  one  who  did  not  possess  it  before.  The 
borrower  of  money  on  an  accommodation  note  must 
require  it  to  pay  an  old  debt,  in  which  case  his  con- 
trol over  it  is  parted  with,  or,  for  some  new  operation, 
agricultural,  commercial,  manufacturing,  or  specula- 
tive, which  in  the  nature  of  things  may  not  be  termi- 
nated in  a short  time,  and  in  neither  case  is  he  the 
sort  of  borrower  that  a bank  can  rely  upon  to  enable 
it  to  meet,  under  all  circumstances,  its  notes  payable 
on  demand.  Nor  is  this  yet  all.  The  discounting  of 
notes  given  for  property  sold,  does  not  encourage 
over-trading,  like  the  discounting  of  accommodation 
notes.  The  latter,  if  the  proceeds  be  not  applied  to 
pay  old  debts,  places  at  the  disposal  of  borrowers  the 
means  of  speculating  which  they  did  not  before 
possess.  Speculation  raises  prices,  and  stimulates 
speculative  sales  and  transfers,  by  which  the  regular 
business  of  the  community  is  disturbed,  only  to  be 
followed  by  a reaction.  ^ 

From  this  view  of  the  subject  it  may  easily  be  seen, 
how  absolutely  essential  it  is  for  the  interest  of  the 
public,  that  banks  of  circulation  should  retain  unim- 
paired their  control  over  their  loans.  So  soon,  there- 
fore, as  they  exchange  their  promissory  notes  payable 
on  demand  in  gold  and  silver,  not  for  the  promissory 


94 


A TREATISE  ON 


notes  of  individuals  given  for  property  sold,  and  pay- 
able at  short  periods,  but  for  notes  payable  at  distant 
periods,  or  for  notes  understood  expressly  or  implied- 
ly, to  be  renewable  in  whole  or  in  part,  they  annihi- 
late their  power,  and  place  themselves  at  the  mercy 
of  the  public.  They  are  liable  to  be  called  upon  for 
the  payment  of  their  notes  faster  than  their  debtors 
are  bound  or  are  able  to  pay  them;  and  instead  of 
fulfilling  their  engagements  promptly  and  in  good 
faith,  they  are  obliged  to  resort  to  discreditable  ex- 
pedients, to  deter  the  holders  of  their  notes  from  de- 
manding payment. 

In  the  preceding  remarks,  I have  only  spoken  of 
bank  notes  as  being  the  form  in  which  banks  of  cir- 
culation lend  their  credit,  but  this  was  done  to  sim- 
plify the  subject.  All  that  has  been  said  in  relation 
to  bank  notes,  applies  equally  to  that  other  species  of 
obligation  which  is  expressed  by  the  term  bank  credit 
or  deposit  when  it  arises  from  the  discounting  of  a 
note,  for  it  must  be  manifest  that  the  same  profit  re- 
sults to  a bank,  where  such  a credit  or  deposit  remains 
undrawn  for,  as  where  an  equal  amount  remains  in 
circulation  in  the  form  of  bank  notes,  and  that  the 
ability  to  pay  such  a liability  depends,  as  in  the  case 
of  notes,  upon  the  length  of  time  for  which  discounts 
are  made. 


CHAPTER  VI. 

EXAMINATION  OF  THE  COMMON  OPINION  THAT 
BANKS  CREATE  CAPITAL. 

A VERY  general  error  prevails  with  the  public, 
arising  from  a want  of  analytical  examination  of  the 
subject,  which  is,  that  banks  have  the  power  to  create 


CURRENCY  AND  BANKING. 


95 


capital.  As  this  error  lies  at  the  bottom  of  the  whole 
system  of  false  reasoning  with  which  the  speeches  in 
legislative  bodies,  and  the  columns  of  newspapers  are 
filled,  and  as  its  eradication  is  of  vital  importance  to 
the  country,  and  must  precede  any  real  reform  in  the 
banking  system,  I shall  enter  in  detail  into  its  inves- 
tigation, and  solicit  the  reader’s  particular  attention. 

What  is  capital?  The  capital  of  a community  is 
that  aggregate  mass  of  things  possessing  exchange- 
able value,  which  are  destined  to  supply  the  neces- 
saries, the  comforts,  and  the  luxuries  of  life,  or,  which 
are  intended  to  be  employed  in  the  production  of 
other  things  with  such  ultimate  view.  Hence  lands, 
houses,  workshops,  factories,  rail-roads,  canals,  pro- 
visions, clothing,  fuel,  merchandise,  raw  materials  of 
every  kind,  ships,  utensils,  machinery,  and  other  such 
articles,  including  gold  and  silver,  are  capital.  If  the 
farmer  wishes  to  cultivate  more  fields,  or  to  cultivate 
his  present  fields  more  highly,  or  to  make  improve- 
ments on  his  fiirm,  or  extend  his  operations  in  any 
way,  the  capital  he  stands  in  need  of,  is  land,  cattle, 
horses,  sheep,  implements,  seed,  food  and  clothing. 
If  ""a  manufacturer  desires  to  enlarge  his  operations, 
he  require?,  buildings,  machinery,  raw  materials,  and 
subsistence  for  his  workmen.  If  a merchant  pro- 
poses to  extend  his  commerce,  he  wants  ships,  car- 
goes of  agricultural  produce,  or  merchandise,  and 
provisions  for  his  crew.  The  money  which  is  wanted 
by  each  of  these  operators  to  deal  with,  as  well  as  to 
pay  the  wages  of  those  whom  he  employs,  is  only  the 
instrument  by  which  he  and  his  laborers  are  enabled 
to  procure  some  of  the  articles  above  enumerated,  so 
that  it  is  manifest  that  the  power  of  any  given  popu- 
lation to  set  additional  industry  in  motion,  is  limited 
by  the  amount  of  its  capital  as  above  described.  Now 
it  is  very  evident,  that  the  mere  emission  of  bank 
notes  adds  nothing  to  the  mass  of  capital  previously 
existing.  It  creates  neither  lands,  houses,  machinery, 
ships,  raw  materials,  provisions,  raiment,  gold,  silver, 


96 


A TREATISE  ON 


or  any  other  conceivable  thing  that  comes  under  the 
denomination  of  capital.  In  fact,  a bank  note  is 
nothing  but  a promise  to  deliver  on  demand  a certain 
quantity  of  gold  or  silver  which  is  capital,  and  it  is 
easily  to  be  seen,  that  a promise  to  deliver  capital  is 
not  capital  itself,  and  that  no  conceivable  number  of 
such  promises  can  ever  constitute  one  atom  of  the 
thing  promised.  As  well  might  it  be  asserted  to  a 
hungry  man,  that  a baker’s  promise  to  deliver  a loaf 
of  bread,  was  bread  itself,  or  to  a shivering  man  on  a 
cold  day,  that  a tailor’s  promise  to  deliver  a suit  of 
clothes  would  protect  him  from  the  weather  as  well 
as  the  suit  itself  The  matter  is  so  plain,  that  no  one 
can  fail  to  perceive  the  truth  of  these  positions. 

How  then,  it  may  be  asked,  do  the  issues  of  paper 
credits  by  banks  of  circulation  operate  upon  the  com- 
munity, and  produce  that  appearance  of  increasing 
wealth  in  places  where  they  have  been  established? 
This  is  an  important  question,  and  if  closely  examined, 
will  be  found  to  lead  to  an  answer,  calculated  to  dis- 
pel much  of  the  delusion  under  which  the  public 
labors,  as  to  a supposed  magic  power  of  production 
conferred  upon  a number  of  individuals  by  an  act  of 
incorporation.  It  is  this.  These  issues  fe^ilitate  the 
transfer  of  the  existing  capital,  that  is,  of  things  pos- 
sessing exchangeable  value,  by  creating  an  additional 
set  of  dealers  with  bank  notes  in  their  hands,  and 
who  are  thereby  enabled  to  purchase  with  the  credit 
of  the  bank,  what  they  could  not  purchase  so  conve- 
niently with  their  own  credit.  A bank  note  indeed 
may  be  considered  as  a draft  in  favor  of  the  borrower, 
given  by  a bank  upon  the  public  at  large,  to  deliver 
him  a certain  amount  of  capital  of  any  description  he 
may  want;  the  bank  promising  any  one  who  may 
honor  its  draft,  to  pay  on  demand  an  equal  value  in 
gold  and  silver.  Or,  the  bank  may  be  imagined  as 
borrowing  upon  its  promissory  note,  a certain  amount 
of  capital  from  A,  and  handing  it  over  to  B,  taking 
in  payment  the  promissory  note  of  the  latter,  and 


CURRENCY  AND  BANKING. 


97 


charging  a commission  for  its  agency.  That  this 
is  the  case,  will  be  made  plain  from  the  following 
statement. 

Let  us  suppose  a bank  with  a capital  of  one  million 
of  dollars.  After  this  is  all  loaned  out,  it  is  very 
evident  that  the  bank  has  no  more  capital  to  lend.  A 
oflfers  a note  for  discount,  having  sixty  days  to  run, 
for  one  thousand  dollars,  and  the  bank  discounts  it, 
by  giving  one  thousand  dollars  of  its  own  notes  pay- 
able on  demand.^  These  notes,  as  I have  shown,  are 
not  capital,  but  a promise  to  deliver  capital,  and  it  is 
only  because  the  bank  supposes  that  no  demand  v/ill 
be  made  upon  it  before  the  expiration  of  sixty  days, 
when  A’s  note  will  become  due,  that  it  considers 
itself  safe  in  exchanging  notes  with  A for  that  length 
of  time.  If  the  notes  come  back  for  payment  before 
A’s  note  is  paid,  it  is  evident  that  the  bank  cannot 
fulfil  its  promises  to  deliver  capital,  without  borrow- 
ing from  some  one  else,  or  without  compelling  some 
of  its  other  debtors  to  pay,  and  what  is  true  of  A’s 
note  is  true  of  all  the  other  notes  which  the  bank  may 
discount  in  exchange  for  its  own  notes. 

A then,  it  is  clear,  has  not  borrowed  capital  of  the 
bank,  as  all  the  other  borrowers  did  who  preceded 
him.  He  has  merely  borrowed  the  credit  of  the  bank. 
Atid  the  question  may  now  be  very  naturally  asked, 
why  should  he  be  willing  to  borrow  the  credit  of  the 
bank  at  the  rate  of  six  per  cent,  per  annum,  when  he 
has  found  his  own  credit  so  good  that  the  bank  would 
take  it,  as  is  proved  by  their  trusting  him  for  sixty 
days  with  one  thousand  dollars  of  their  notes?  The 
answer  to  this  question  is,  that  the  credit  of  the  bank 
is  of  greater  notoriety  than  the  credit  of  A.  Every 
body  will  trust  the  bank  because  its  capital  is  known, 
or  assumed  to  exist,  and  because  every  body  has  heard 
of  the  bank,  and  has  not  heard  of  A,  and  consequently 
there  are  persons  who  will  trust  the  bank,  who  would 

* The  discount  will  of  course  be  deducted. 

9 


98 


A TREATISE  ON 


not  trust  A;  or,  because  a confidence  exists,  that  a 
bank  note  will,  for  an  indefinite  period,  continue  to 
pass  from  hand  to  hand,  as  equivalent  to  the  metal, 
which,  upon  its  face,  it  promises  to  pay  on  demand. 
This  universal  confidence  in  the  credit  of  the  bank  it 
is,  in  connection  with  the  known  fact,  that  these  notes 
will  pay  the  debts  due  to  the  bank  for  the  million  of 
dollars  first  loaned  as  readily  as  gold  and  silver,  which 
renders  them  universally  receivable;  and  as  every 
body  who  holds  them  knows  that  he  can  at  any  time 
procure  whatever  he  wishes  to  buy  with  them,  no 
one  is  in  a hurry  to  send  them  in  for  payment,  and 
on  that  account  they  remain  out  in  circulation  for  a 
long  or  short  time,  by  which  the  bank  gains  interest, 
whilst  the  holders  of  its  notes  lose  no  more  than  they 
would  lose  upon  an  equal  balance  kept  on  hand  in 
gold  or  silver.  But  there  is  another  reason  why  the 
credit  of  the  bank  is  worth  at  least  a part  of  the  price 
which  A pays  for  it.  It  is  susceptible  like  coins,  of 
divisions  and  sub-divisions  into  very  small  fractions, 
whilst  security  is  afforded  for  punctual  payment  by 
the  perpetual  succession  incident  to  a charter,  or  by 
the  survivorship  of  one  or  more  of  several  copartners, 
and  facilities  are  granted  by  having  certain  hours  on 
each  day  at  which  payment  may  be  demanded,  so 
that  no  time  is  lost  in  making  a second  or  third  call, 
which  would  be  very  apt  to  happen  with  the  notes  of 
individuals  not  acting  as  bankers.  Perhaps  the  cer- 
tain knowledge  of  the  fact  that  banks  during  certain 
hours  are  to  be  found  open  and  ready  to  meet  demands 
without  a moment’s  delay,  does  as  much  to  keep  their 
notes  out  in  circulation  as  any  thing  else;  for  any  one 
can  see,  if  there  were  no  banking  hours,  and  if  a call 
might  have  to  be  repeated,  people  at  a distance  would 
receive  notes  with  reluctance,  and  would  send  them 
in  for  payment  before  they  actually  needed  the 
money,  for  fear  of  disappointment  on  the  day  it  was 
wanted. 

But  it  may  be  said  that  A,  when  he  got  his  note 


CURRENCY  AND  BANKING. 


99 


discounted,  did  not  want  to  purchase  goods  by  retail, 
but  by  wholesale,  and  that  therefore,  he  gained  no- 
thing by  the  privilege  he  possessed  of  taking  small 
bank  notes.  Why  did  he  not  then  purchase  the  goods 
he  wanted  of  the  holder  directly  by  using  his  own 
credit  and  giving  his  own  note,  instead  of  giving  the 
bank  one  per  cent.,  the  discount  of  his  note*  for  sixty 
days,  for  the  use  of  their  notes?  I answer  for  the 
very  simple  reavson,  that  he  found  that  he  could  pur- 
chase goods  with  the  credit  of  the  bank  upon  better 
terms  than  he  could  upon  his  own  credit.  Upon  no 
other  principle  would  he  have  gone  to  the  bank  for  a 
discount;  for  surely  no  man  would  give  one  per  cent, 
to  a bank  for  swapping  notes  for  one  thousand  dollars 
if  the  bank’s  notes  would  not  buy  more  than  his  own 
individual  note  at  sixty  days  for  a thousand  dollars 
would  buy.  If  it  should  be  said  that  the  object  of  A 
in  getting  the  discount  was  to  pay  an  old  debt,  the 
case  would  not  be  altered.  The  credit  of  the  bank  is 
worth  to  him  in  this  case  as  much  as  in  the  former, 
the  creditor  being  willing  to  receive  it  as  money,  for 
the  same  reason  that  the  sellers  of  goods  above  re- 
ferred to  were  willing  to  receive  it,  because  its  noto- 
riety rendered  it  universally  receivable  by  others. 

In  no  case  then  can  the  issues  of  a bank  of  circula- 
tion constitute  capital;  and  we  think  the  reader  will 
now  be  ready  to  acknowledge,  that  all  that  a bank  of 
circulation  does  effect,  is  the  mere  lending  of  its 
credit  to  individuals,  to  enable  them  to  procure  upon 
better  terms,  and  in  a more  expeditious  and  conveni- 
ent mode,  the  capital  of  others,  than  they  could  with 
their  own  credit  Whether  this  facility  be  beneficial 
or  otherwise  will  appear  hereafter. 


100 


A TREATISE  ON 


CHAPTER  VII. 

ON  THE  STRICT  CONVERTIBILITY  OF  BANK  NOTES 
AND  CREDITS. 

But  it  may  be  asked,  how  are  banks  to  ascertain 
the  precise  limits  beyond  which  they  cannot  extend 
their  issues  without  endangering  their  solvency  and 
depreciating  the  currency,  and  of  course  injuring  the 
public?  And  what  guarantee  has  the  public,  who, 
from  the  nature  of  things,  can  know  nothing  of  the 
state  of  their  issues  at  all  times,  that  their  confidence 
will  not  be  misplaced? 

The  answer  to  this  question  is  not  easily  to  be 
arrived  at.  In  the  various  investigations  before  the 
British  House  of  Commons  in  reference  to  the  Bank 
of  England,  rules  for  prudent  issues  have  been  laid 
down  by  different  directors,  with  a variety  which 
showed  that  all  did  not  possess  a scientific  acquaint- 
ance with  the  principles  of  banking.  In  the  manage- 
ment of  the  numerous  banks  of  the  United  States,  an 
inexcusable  ignorance  of  first  principles  has  been 
repeatedly  manifested,  and  hence,  we  have  seen 
repeated  expansions  and  contractions  of  a highly  pre- 
judicial nature.  These  expansions  and  contractions, 
however,  with  the  fluctuations  in  prices  necessarily 
accompanying  them,  would  exist  only  to  a limited 
extent,  if  there  were  a real  hona  fide  convertibility; 
and  I wish  it  to  be  distinctly  understood  that  all  my 
remarks  favoring  banks  of  circulation,  are  founded 
upon  the  supposition  of  such  convertibility. 

How  then  is  absolute  convertibility  to  be  attained? 
I answer,  by  the  joint  co-operation  of  the  banks,  of 
the  public,  and  of  the  legislatures. 

The  duties  which  the  banks  have  to  perform  are, 
firsts  to  deal  honestly  with  their  creditors,  by  keeping 
thomselves  in  a condition  at  all  times  to  meet  their 


CURRENCY  AND  BANKING, 


10 


liabilities,  and  by  promptly  paying  on  demand,  in 
acceptable  coin,  their  notes  or  deposites  for  any 
amount  that  may  be  called  for,  without  the  slightest 
intimation  by  the  looks,  words,  or  deeds  of  their 
officers,  that  they  would  rather  not  pay,  and  conse- 
quently, by  despising  those  miserable  and  discredit- 
able expedients  so  frequently  resorted  to  by  banks  on 
the  eve  of  insolvency,  of  gaining  time  by  a useless 
delay  in  counting  out  small  coins,  or  in  weighing 
gold  pieces;  secondly^  by  scrupulously  avoiding  to 
throw  obstructions  in  the  way  of  a free  exportation  of 
coin,  either  by  refusing  facilities  for  the  packing  up 
at  the  bank  of  sums  however  large,  or  by  disqualify- 
ing the  exporters  from  their  equal  rights  with  others 
when  applying  for  discounts;  thirdly^  by  calling  upon 
each  other  for  the  payment  of  daily  balances  in  coin, 
in  order  that  each  bank  may  be  restricted  within  its 
proper  sphere;  and,  fourthly^  by  confining  them- 
selves to  the  legitimate  pursuits  of  banking,  and  by 
carefully  watching  the  political  horizon,  to  see  that 
no  event  like  war,  civil  commotion,  or  governmental 
interference  with  the  currency,  is  likely  to  find  them 
unprepared. 

An  honest  observance  of  these  rules  would  of  itself 
establish  true  convertibility,  but  unfortunately  expe- 
rience has  given  too  much  reason  to  fear,  that  the 
moral  sense  of  corporations  cannot  be  relied  upon  for 
the  protection  of  the  public.  The  ignorance  of  some, 
the  speculative  avarice  of  others,  the  fiivoritism  inci- 
dent to  most,  and  the  desire  common  to  all,  to  amass 
large  profits,  are  constantly  operating  to  effect  an  ex- 
pansion of  the  currency  to  the  utmost  limits  of  tension; 
and  however  prudently  and  wisely  conducted  may 
be  many  of  these  institutions,  their  influence  and  ex- 
ample are  lost  upon  the  rest,  and  when  a calamity 
befalls  the  country  by  a general  stoppage  of  payn)ents, 
they  are  made  to  share  in  the  common  catastrophe. 

I’he  duties  which  the  public  have  to  perform,  as  a 
check  upon  this  perpetual  tendency  to  over-issue,  are 
9^ 


102 


A TREATISE  ON 


incumbent  on  every  citizen;  and  he  who  withholds 
his  co-operation,  when  he  has  a motive  to  act,  be- 
comes a participator  in  the  wrong.  They  are,  simply, 
for  every  man  who  wishes  to  convert  bank  notes  or 
deposites  into  coin,  either  for  the  purpose  of  conve- 
nience or  exportation,  and  whether  the  amount  be 
large  or  small,  to  make  his  demand  without  being 
influenced  by  fear,  favor,  or  affection,  or  through 
any  false  or  mistaken  delicacy  towards  the  directors 
of  banks,  or  their  debtors  who  might  in  consequence 
thereof  be  called  upon  for  an  earlier  reimbursement. 
Here,  again,  unfortunately,  experience  demonstrates, 
that  the  independence  and  moral  firmness  of  most 
merchants  is  not  proof  against  the  influences  which 
may  be  brought  to  bear  against  them.  On  the  one 
hand,  they  find  their  discounts  interfered  with,  and 
their  commercial  operations  crippled;  whilst  on  the 
other,  they  discover  that  a clamor  is  raised  against 
them  by  those  debtors  to  the  banks  who  purchase 
commodities  from  them,  as  soon  as  they  feel  the  pres- 
sure occasioned  by  a diminution  of  discounts,  conse- 
quent upon  a heavy  demand  for  specie.^ 

The  only  true  resort,  therefore,  that  can  be  appealed 
to  for  absolute  convertibility  is  legislation.  But  how 
is  this  legislation  to  be  expressed.^  By  forfeiting  the 
charters  of  banks  that  do  not  pay  their  notes.  I'he 
legislature  of  New  York  in  May,  1837,  absolved  its 
banks  from  this  penalty  for  one  year.  By  imposing 
a penalty  of  twelve  or  twenty-four  per  cent,  per  an- 
num, upon  notes  and  deposites  not  paid  in  coin. 
Such  provisions  were  wholly  inoperative  in  those 
states  where  they  prevailed,  during  the  late  general 
suspension,  by  the  evasion  of  the  banks,  and  by  po- 
pular clamor  raised  against  individuals  who  de- 
manded their  rights,  and  cannot  be  relied  upon,  either 
to  prevent  a general  stoppage,  or  to  enforce  a resump- 

* Whenever  gold  and  silver  legal  tenders  are  both  saleable 
at  a premium,  it  is  proof  of  the  absence  of  true  convertibility. 


CURRENCY  AND  BANKING. 


103 


tion  with  promptness.  The  true  and  only  answer  is, 
by  establishing  individual  liability^  such  as  that 
which  exists  with  all  the  joint-stock  banks  of  England, 
and  all  the  private  banks  of  that  country  as  well  as 
of  Europe.^ 

With  such  a convertibility  as  this  would  accom- 
plish, we  should  rim  comparatively  very  little  risk  of 
expansions  and  their  consequent  contractions,  or  of  an 
alternate  plenty  and  scarcity  of  money.  Tne  over- 
trading of  each  particular  bank  would  be  checked 
by  the  prudent  regard  to  self-interest  which  would 
operate  upon  its  managers;  and  if  recklessness  should 
characterise  the  conduct  of  one,  or  a dozen,  or  a 
hundred  banks,  it  or  they  would  simply  fail,  like 
individual  traders,  and  make  an  assignment  of  their 
property,  without  producing  the  catastrophe  of  a 
general  suspension  of  specie  payments.  To  prevent 
the  failure  of  banks  altogether  is  impossible.  The 
most  that  can  be  done,  is  to  prevent  a general 
stoppage. 

But  in  laying  down  this  proposition,  I am  far  from 
imagining  the  present  possibility  of  its  adoption  in  the 
United  States.  The  principle  of  limited  liability  by 
acts  of  incorporation,  and  by  laws  authorising  limited 
partnerships,  is  too  deeply  rooted  in  our  system  to  be 

* Mr.  McCulloch  in  his  Commercial  Dictionary,  edition  of 
1834,  pages  109  and  110,  has  the  following  remarks.  “Bad 
as  our  system  of  country  banking  undoubtedly  is,  we  should 
be  exceedingly  sorry  to  see  any  attempt  made  to  improve  it,  by 
the  adoption  of  even  the  best  parts  of  the  American  systemi” 
******  44 1’hat  part  of  the  American  system  which  limits 

the  responsibility  of  the  partners  in  a bank  to  the  amount  of  their 
shares^  seems  to  us  to  be  in  the  last  degree  objectionable.  It 
affords  a strong  temptation  to  the  commission  of  fraud,  and  we 
have  yet  to  learn,  that  it  possesses  a single  countervailing  ad- 
vantage. We  have  been  assured  by  those  well  acquainted  with 
the  facts,  that  it  has  been  productive  of  the  most  mischievous 
consequences.” 

For  an  able  exposition  of  the  principles  of  individual  liability^ 
see  the  article  G,  in  the  Appendix,  by  James  Cox  Esq.,  of  Phi- 
ladelphia, now  first  published. 


104 


A TREATISE  ON 


now  eradicated ; and  as  I believe  the  most  practicable 
scheme  of  reform  to  which  legislation  can  be  applied 
at  this  day,  is  to  be  found  in  the  policy  of  the  New 
York  general  banking  law,  I will  in  a future  chapter 
give  my  reasons  for  believing  that  plan  to  be  belter 
calculated,  if  made  general  throughout  the  Union,  to 
give  stability  to  the  currency,  than  any  other  that 
would  be  likely  to  meet  a general  acceptance. 


CHAPTER  VIII. 

OF  THE  VARIOUS  MODES  RESORTED  TO  BY  SOME 
BANKS  TO  AUGMENT  THEIR  DIVIDENDS. 

Every  sound  thinker  who  has  taken  notice  of  the 
high  rates  of  dividends  that  were  declared  by  many 
of  the  banks  throughout  the  United  States,  during 
the  years  1836,  1837,  and  1838,  whilst  their  number 
was  increasing,  and  when,  upon  every  known  prin- 
ciple, their  dividends  ought  to  have  decreased,  must 
be  satisfied  in  his  own  mind,  that  these  extraordi- 
nary dividends  did  not  result  from  the  legitimate  ope- 
rations of  banking,  that  is,  from  the  lending  of  money 
or  credit  at  the  rate  of  interest  authorised  by  law. 
The  charters  of  most  of  our  banks  restrict  their 
operation  to  the  lending  of  money  and  to  trading  and 
dealing  in  bills  of  exchange,  gold  and  silver  bullion, 
and  certain  specified  public  securities;  and  hence,  all 
other  transactions  are  in  violation  of  the  laws.  I have 
stated  in  a former  chapter,  that  the  charge  of  one  half 
per  cent,  interest  taken  beforehand,  in  connection 
with  the  practice  of  charging  interest  for  sixty-four 
days  upon  a note  payable  in  sixty  days  with  three 
days  grace,  is  equal  to  per  cent,  per  annum,  and 
this  it  is  evident  is  all  that  a bank  has  a right  to  claim 


CURRENCY  AND  BANKING. 


105 


for  the  use  of  its  money  or  credit.  Modern  competi- 
tion, however,  has  operated  upon  some,  and  led  them 
to  adopt  numerous  modes  of  getting  more  than  this 
rate.  Amongst  these  are  the  following: 

1.  The  practice  of  giving  a preference  in  their  dis- 
counts to  those  customers,  who  by  agreement,  express 
or  implied,  stipulate  to  leave  in  the  bank,  never  to  be 
drawn  for,  a certain  proportion  of  the  amount  bor- 
rowed; by  which  virtually  the  bank  receives  interest 
for  money  or  credit  which  it  does  not  lend.  Exam- 
ples have  been  known  wherein  a sum  equal  to  twen- 
ty, thirty,  or  forty  per  cent,  has  been  expected  to 
remain  as  a permanent  undrawn  balance,  thus  adding 
to  the  profits  of  the  bank,  by  a sheer  evasion  of  the 
laws  against  usury.  Borrowers  upon  such  terms  are 
seldom  to  be  found  amongst  the  most  responsible 
traders,  but  can  always  be  had  in  abundance  amongst 
that  class  of  needy  men,  who,  without  such  a facility, 
would  be  obliged  to  borrow  in  the  open  market  at  a 
higher  rate  of  interest.  If  this  principle  had  been 
extended  to  the  loans  of  all  the  banks  of  the  United 
States,  amounting  in  1838  to  upwards  of  ^500,000,000 
as  far  as  five  per  cent,  upon  an  average,  the  banks 
would  have  derived  from  it  a profit  equal  to  the  inte- 
rest on  twenty-five  millions  of  dollars,  that  is,  up- 
wards of  a million  and  a half  of  dollars. 

2.  The  practice  of  discounting  notes,  and  instead 
of  giving  cash  for  the  net  proceeds,  giving  post  notes 
payable  at  thirty  or  sixty  days  date,  by  which  means 
the  bank  gains  a profit  equal  to  the  interest  for  the 
time  the  note  has  to  run.  In  other  words,  if  a bank 
discounts  a note  having  ninety  days  to  run,  and  gives 
in  exchange  for  it  a post  note  payable  in  thirty  days, 
it  receives  interest  for  ninety  days  for  the  loan  of 
money  for  sixty  days,  inasmuch  as  the  post  note  is 
not  money  until  it  becomes  due,  as  will  hereafter  be 
shown.  The  extent  to  which  this  practice  has  been 
carried  throughout  the  United  States  is  very  great, 
and  it  is  defended  upon  the  ground  that  the  emission 


106 


A TREATISE  ON 


of  post  notes  enables  merchants  who  have  remittances 
to  make  to  distant  points,  to  effect  that  object  more 
securely  and  conveniently  than  by  the  transmission  of 
bank  notes  payable  to  bearer,  on  account  of  the 
security  afforded  by  the  former’s  being  only  transferable 
by  endorsement.  This  is  true,  but  it  is  manifest  that 
this  end  would  be  as  complelely  attained  by  a post 
note  payable  in  three  days  after  date,  as  by  one  pay- 
able in  sixty  days.  But  this  is  not  all.  Post  notes 
at  long  dates,  not  only  enable  banks  to  profit  by 
evading  the  laws  against  usury,  but  they  enable 
banks  to  raise  money  for  their  own  use  when  they 
are  embarrassed,  without  appearing  to  borrow,  a 
facility  which  renders  them  less  careful  of  expansions 
of  the  currency  than  they  otherwise  would  be.* 

3.  The  practice  of  lending  the  notes  of  a bank 
with  an  express  understanding  that  the  borrower  is 
not  to  put  them  into  circulation  within  a certain  dis- 
tance of  the  place  where  the  bank  is  located,  or 
within  a certain  time  from  their  coming  into  his  pos- 
session, by  which  means  the  bank  would  receive 
interest  for  the  time  that  would  thus  intervene,  with- 
out having  made  any  loan.  An  example  of  this 
species  of  contract  was  exposed  in  the  examination  of 
the  affairs  of  the  Chelsea  bank  near  Boston,  in  1837, 
two  of  the  directors  of  which  borrowed  the  notes  of 
the  bank  which  they  were  not  to  put  in  circulation, 
but  which  they  were  to  pledge  for  money  borrowed, 
elsewhere,  and  it  was  probably  with  the  view  of  pre- 
venting a resort  to  such  expedients,  that  the  legis- 
lature of  Massachusetts  in  that  year  prohibited  banks 
from  issuing  notes  that  are  not  to  go  into  immediate 
circulation. 

4.  The  practice  of  discounting  notes,  and  instead 
of  paying  the  net  proceeds  in  money,  stipulating 

* The  banks  of  New  York  are  prohibited  from  issuing  post 
notes.  Some  of  those  of  Philadelphia  entered  very  deeply  into 
this  branch  of  business  in  the  years  1838  and  1839,  abroad  as 
well  as  at  home,  and  became  greatly  embarrassed  by  it. 


CURRENCY  AND  BANKING. 


107 


with  the  borrower  that  he  is  to  'take  the  notes  of  dis- 
tant banks,  known  to  be  in  the  market  at  a discount. 
This  expedient  has  been  extensively  resorted  to  all 
over  the  United  States,  and  in  some  cases  in  such 
flagrant  violation  of  the  laws  aginst  usury,  as  to  be 
accompanied  by  a regular  bargain  to  purchase  back 
by  the  bank,  at  the  market  rate  of  discount,  the  very 
paper  just  handed  to  the  borrower.  Nay,  transac- 
tions have  been  even  conducted  in  so  barefaced  a 
manner,  that  discounts  have  been  made  payable  in 
distant  paper  which  the  bank  did  not  possess,  and 
which  she  purchased  back  at  a discount,  thus  sub- 
stituting a conslrxictive  sale  and  purchase  of  what 
possessed  no  existence,  for  the  sake  of  avoiding  a 
direct  usurious  transaction.  Many  flagrant  examples 
of  the  expedients  here  described,  extending  to  nearly 
all  the  banks  of  Providence,  were  exposed  by  a com- 
mittee of  the  legislature  of  Hhode  Island  in  June, 
1S:^6,  in  a report,  a copy  of  which  accompanied  the 
secretary  of  the  treasury’s  report  on  the  condition  of 
certain  banks,  of  January  4,  1837. 

5.  The  practice  of  discounting  domestic  or  inland 
bills  of  exchange,  by  which  advantage  has  been 
taken  under  the  color  of  exchange,  to  charge,  besides 
the  legal  interest,  and  a fair  charge  for  collecting,  the 
most  extortionate  rates  of  profit,  having  no  real  rela- 
tion to  the  actual  expense  of  collecting,  but  only  to 
the  necessities  of  borrowers.*  In  the  examination, 

* The  following  article  which  appeared  in  a newspaper  in 
December,  1839,  is  important  as  regards  this  practice. 

Important  Legal  Decision. — The  Cincinnati  Gazette  contains 
a notice  of  the  decision  of  a case  at  Columbus,  Ohio,  which 
attracted  much  attention  on  account  of  the  principles  involved. 
The  facts  were  briefly  these: 

Paddleford  wrote  to  the  cashier  of  the  bank,  inquiring  if  they 
would  discount  a note  with  his  and  other  names  mentioned,  pay- 
able east  6 or  8 months.  The  cashier  replied,  that  the  bank  was 
not  discounting,  but  his  bill  with  the  names  mentioned  forgbOOO, 
at  6 months  payable  in  New  York,  Philadelphia,  or  Baltimore, 
would  be  purchased  at  their  usual  rates,  and  the  procceeds  paid 


108 


A TREATISE  ON 


by  a committee  of  the  legislature  of  New  York,  in 
1838,  of  the  affairs  of  one  of  the  city  banks,  some 
gross  malpractices  of  that  institution  were  developed. 
It  was  proved  to  have  charged  from  five  to  ten  per 
cent,  exchange  on  the  collection  of  drafts,  when  the 
market  rate  of  exchange  on  similar  drafts  was  not 
more  than  from  three  to  six;  had  discounted  paper 
with  the  express  understanding  that  the  party  accom- 

in  their  own  bills,  if  intended  for  circulation  or  in  a check  east 
at  the  usual  premium:  and  he  endorsed  a printed  blank  form  of 
a bill.  Paddleford  and  the  other  person  signed  the  blank  paper 
filled  up  only  with  the  sum,  and  he  sent  it  to  the  cashier  in  a 
letter  requesting  him  to  remit  the  proceeds  to  him  in  an  eastern 
check,  less  the  premium.  The  paper  was  received  at  the  bank, 
and  filled  up  with  the  name  of  their  own  correspondent  in  New 
York,  the  cashier  of  a bank  as  a drawee,  in  their  own  favor. 
The  drawer  never  had  funds  in  his  hands.  Deducting  the  in- 
terest for  six  months  and  four  days,  and  one  per  cent,  they  re- 
mitted him  the  net  proceeds  in  a check  on  New  York  less  lA 
per  cent,  premium,  and  ordered  a notice  to  be  furnished  to  him 
of  the  name  of  the  drawee,  and  of  the  time  and  place  of  payment, 
which  notice  was  duly  received. 

The  charter  of  the  bank  prohibits  them  from  taking  more  than 
at  the  rate  of  6 per  cent,  per  annum  on  their  loans  or  discounts^ 
The  defendants,  the  securities,  (Paddleford  not  having  been 
served  with  process)  set  up  as  a defence,  that  this  bill  was  dis- 
counted at  a higher  rate  than  6 per  cent,  per  annum,  and  there- 
fore was  against  the  charter,  unlawful  and  void.  The  bank 
claimed  that  the  bill  was  fairly  purchased  in  the  market,  and 
that  one  per  cent,  was  retained  as  exchange.  The  court  in- 
structed the  jury  that  the  bank  could  buy  and  sell  exchange  at 
any  fair  rate  agreed  upon,  without  violating  its  charter;  and  if 
the  transaction  before  them  was  a real  purchase  of  a bill  at  1 
per  cent,  exchange  and  interest  off,  the  bank  could  recover,  but 
if  the  intention  was  to  get  a greater  compensation  for  the  use  of 
the  money  than  at  the  rate  of  6 per  cent,  per  annum,  and  the 
form  of  the  bill  was  resorted  to,  to  cover  up  that  design,  then  the 
contract  was  unlawful,  and  the  defendants  must  have  a verdict; 
that  the  jury  should  be  governed  by  the  real  transaction,  no 
matter  what  form  it  assumed. 

This  decision  seems  to  cut  up  by  the  roots,  the  business  of 
discounting  fictitious  bills  of  exchange  by  banks  similarly  re- 
stricted, merely  for  the  purpose  of  exacting  high  interest  under 
the  name  of  exchange. 


CURRENCY  AND  BANKING. 


109 


modated  was  not  to  receive  cash  for  the  net  proceeds, 
but  a draft  at  par  upon  some  distant  place,  worth  in 
the  market  one  to  three  per  cent,  less  than  the  rate  at 
which  it  was  taken;  and  had  even  purchased  back 
their  own  drafts  at  such  a rate  of  discount.  What 
this  bank  did,  has  been  done,  more  or  less,  by  a large 
portion  of  the  banks  in  the  United  States,  and  the 
evil  has  become  so  extensive  that  funds  which  should 
be  devoted  to  the  discounting  of  real  paper  payable 
on  the  spot,  have  been  diverted  to  the  purchase  of 
fictitious  bills,  created  for  the  very  purpose  of  raising 
money,  and  not  in  the  ordinary  course  of  trade. 

6.  The  practice  resorted  to  by  some  banks,  of  dis- 
counting notes  in  the  market,  through  the  instrumen- 
tality of  brokers,  at  usurious  interest,  instead  of  dis- 
counting them  at  lawful  interest,  in  the  regular  way. 
The  New  York  bank  above  referred  to,  was  proved 
to  have  discounted  at  usurious  interest  out  of  doors, 
the  very  notes  that  had  been  offered  to  the  bank  and 
been  rejected  by  the  board  of  directors. 

7.  dhe  practice  of  speculating  in  stocks,  and,  in 
the  case  of  some  of  the  Mississippi  banks  and  others, 
transacting  the  business  of  cotton  factors,  and  cotton 
exporters. 

S.  'I'he  practice  of  buying  up  the  depreciated  pa- 
per of  other  banks,  under  a suspension  of  specie  pay- 
ments, and  holding  it  until  redeemed  in  coin.  Large 
sums  were  invested,  in  183S,  by  some  of  the  Phila- 
delphia and  New  York  banks,  in  purchases  of  the 
notes  of  the  Mississippi  banks  from  ten  to  twenty-five 
per  cent,  discount,  and  loaned  to  the  latter  at  par  for 
their  bonds  payable  at  a subsequent  period. 

9.  The  practice  adopted  by  many  of  the  banks  of 
New  England,  and  perhaps  of  other  places,  of  lend- 
ing to  brokers  on  interest,  repayable  on  demand,  a 
large  proportion  of  the  amount  which  banks  in  other 
places  consider  themselves  bound  to  keep  on  hand,  in 
coin,  to  meet  possible  demands. 

10.  If  to  these  items  be  added  the  amount  of  profit 
10 


110 


A TREATISE  ON 


made  by  the  banks  during  the  late  suspension,  by 
drawing  interest  on  money  that  belonged  to  their 
creditors  and  not  to  themselves,  we  shall  have  the 
true  sources  from  which  the  large  dividends  were 
derived.  What  proportion  of  the  whole  interest 
received  is  to  be  ascribed  to  this  source,  is  not  pre- 
cisely ascertainable;  but  this  much  may  be  known 
with  certainty,  that  it  was  equal  to  the  income  arising 
from  that  proportion  of  the  aggregate  mass  of  loans 
made  by  all  the  banks,  that  exceeded  the  amount 
that  could  have  been  sustained  under  a convertible 
currency. 


CHAPTER  IX. 

OF  THE  CREATION  OF  BANKS  WITHOUT  CAPITALS, 
OR  OF  FRAUDULENT  BANKS. 

The  term  fraudulent  bank  is  intended  to  be  applied 
to  a bank  commenced  without  capital,  or  what  is  the 
same  thing,  a bank,  the  stock  of  which  is  held  by 
persons  who  have  not  the  means  of  paying  for  it,  and 
who  have  consequently  been  obliged  to  hypothecate 
it  to  the  bank  as  collateral  security  for  stock  notes 
discounted  to  meet  the  instalments  as  severally  called 
for.  The  mode  by  which  such  a bank  may  be  esta- 
blished without  capital  is  this: — 

Books  are  opened  to  receive  subscriptions  to  the 
capital  stock,  each  share  of  which  is  to  be  ^100,  of 
which  $5  per  share  is  to  be  paid  at  the  time  of  sub- 
scribing. The  capital  is  to  consist  of  1000  shares, 
equal  to  ® 100,000.  The  stock  is  taken,  not  by  capi- 
talists, as  a mode  of  investment,  but  by  persons  who 
subscribe  as  a matter  of  speculation,  with  the  view  of 
selling  out  at  a profit.  The  first  instalment,  amounting 


CURRENCY  AND  BANKING. 


Ill 


to  $5000  being  paid  in,  the  directors  are  chosen  from 
amongst  these  very  speculators,  who  are  expected  to 
make  the  payment  of  the  ensuing  instalments  come 
easy  to  themselves  and  their  constituents.  A second 
instalment  of  ®10  is  called  for,  but  as  the  holders  of 
the  stock  have  no  more  money  to  pay  in,  they  offer 
notes  for  discount,  and  pledge  their  stock  to  the  bank 
as  collateral  security.  The  third,  fourth,  fifth,  and  all 
subsequent  instalments  are  paid  in  a similar  manner 
by  stock  notes;  and,  finally,  the  stock-holders  obtain 
an  additional  discount  for  the  original  $5  per  share 
paid  in,  which  may  have  been  originally  borrowed, 
and  thus  we  have  a bank  with  a nominal  capital  of 
®100,000,  but  possessing  not  one  dollar  of  real  capital. 

Such  a bank,  however,  in  its  operations  thus  far, 
must  be  a losing  concern.  The  expenses  of  manage- 
ment would  compel  the  stockholders  to  pay  in  dis- 
counts more  than  they  would  receive  in  dividends, 
and  the  next  step  of  the  directors  would  of  course  be, 
to  issue  bank  notes  in  exchange  for  the  promissory 
notes  of  individuals.  In  the  first  instance  they  would 
probably  discount  their  own  notes  or  the  notes^of  other 
stockholders,  in  which  case,  if  the  notes  of  the  bank 
could  be  got  into  circulation,  which  experience  shows 
they  could  be,  if  the  directors  were  adroit  and  active, 
the  borrowers  of  them  would  be  enabled  to  command 
the  capital  of  other  people,  to  carry  on  business  with. 
It  is,  perhaps,  not  probable  that  many  of  the  banks  of 
the  United  States  have  been  entirely  established  upon 
this  principle,  but  no  small  number  of  them  have  been 
partially  so,  and  it  must  be  evident  that  so  far  as  any 
part  of  the  capital  of  a bank  has  been  loaned  to  a 
stockholder  upon  the  hypothecation  of  his  stock,  he 
not  being  entitled  to  credit  vpon  his  mere  personal 
security,  so  far  the  capital  of  the  bank  is  diminished, 
and  so  far  the  public  are  deprived  of  the  security 
which  the  nominal  amount  of  the  capital  promises  to 
afford. 

The  same  deficiency  of  security  might  exist  in 


112 


A TREATISE  ON 


case  there  were  two  banks  established  upon  similar 
principles,  and  the  stock  of  each  was  pledged  with 
the  other  by  two  speculating  sets  of  holders  who 
changed  position. 

The  following  account  of  banks  established  in  part 
upon  this  fraudulent  principle  is  extracted  from  a 
report  made  to  the  legislature  of  North  Carolina, 
during  the  session  of  1S2S-29: — 

The  legislature  having  laid  down,  in  the  charters 
of  the  several  banks,  certain  fundamental  articles  for 
the  government  thereof,  the  committee  assumed  these 
articles  as  the  basis  of  their  investigations,  and  pro- 
ceeded accordingly  to  inquire,  in  the  first  place,  whe- 
ther the  stock  of  the  several  banks  had  been  raised  in 
the  manner  required  by  their  charters.  The  evidence 
received  by  the  committee  on  this  point,  shows  that 
the  charters  of  the  banks  were  disregarded  and  vio- 
lated in  the  very  creation  of  their  capital. 

The  charter  of  the  Bank  of  Cape  Fear,  enacted 
in  1804,  authorised  that  corporation  to  raise  a capital 
stock  of  i85250.000;  and  the  charter  of  the  Newbern 
Bank,  enacted  in  the  same  year,  authorised  that  bank 
to  raise  a capital  stock  of  ®200,000;  both  charters 
directing  the  capital  to  be  paid  by  the  stockholders 
in  gold  or  silver.  The  undersigned  have  received 
no  evidence  as  to  the  mode  in  which  these  baijks  got 
into  operation.  It  would  seem,  however,  that  they 
contemplated,  at  the  outset,  an  evasion  of  the  provi- 
sions of  their  charters.  It  is  in  evidence  to  the  un- 
dersigned, that  soon  after  they  went  into  operation, 
they  contrived  to  get  possession  of  nearly  all  the 
paper  money  which  had  been  issued  on  the  faith  of 
the  state,  which  being  at  the  time  a legal  tender, 
enabled  them  to  evade  demands  for  specie,  which 
they  did,  by  thrusting  this  ragged  paper  at  those  who 
presented  their  notes  for  specie.  In  1807,  $25fi00 
was  added  to  the  capital  stock  of  each  of  these  banks; 
in  1814,  their  charters  were  extended,  and  they  were 
authorised  to  increase  their  respective  capitals  to 


CURRENCY  AND  BANKING. 


113 


j?800,000  each,  viz.,  the  Newbern  Bank  was  author- 
ised to  raise  an  addition  to  its  stock  of  §575,000,  and 
the  Bank  of  Cape  Fear,  an  addition  of  §525,000.  It 
is  in  evidence  to  the  undersigned,  that  the  whole  of 
this  additional  stock  was  manufactured  by  the  banks 
themselves,  and  that,  in  many  instances,  favored 
individuals  were  permitted  to  acquire  stock  by  sub- 
scribing their  names,  and  putting  their  notes  into 
bank,  without  advancing  a single  dollar  of  actual 
capital.  It  follows,  that  the  whole  amount  of  the 
interest  drawn  from  the  people,  on  (he  loans  made  on 
this  fictitious  capital,  was  a foul  and  illegal  extortion. 
The  effect  of  the  transaction  was  the  same  as  if  the 
pretended  stockholders  had  individually  executed 
their  notes  of  hand,  without  interest,  to  the  amount 
of  the  notes  which  they  issued  from  the  bank,  and 
exchanged  them  with  the  people  for  their  notes, 
bearing  interest  and  renewable  every  ninety  days. 
Taking  the  issues  made  on  this  fabricated  capital  to 
be  in  proportion  with  those  made  on  the  former  capi- 
tal, they  must  have  put  into  circulation,  on  the  faith 
of  the  assumed  stock,  between  three  and  four  millions 
of  notes;  and  thus,  a parcel  of  individuals,  under  the 
name  of  stockholders,  but  who,  in  fact,  held  no  stock, 
contrived  to  exchange  their  notes,  without  interest, 
to  the  amount  of  three  or  four  millions,  for  the  notes 
of  the  people,  bearing  an  interest  of  more  than  six 
per  cent.;  and  while  the  property  of  the  people  was 
pledged  for  the  payment  of  the  notes  they  had  given 
to  the  stockholders,  there  was  not  a dollar  or  an  atom 
of  property  pledged  to  them  for  the  payment  of  the 
notes  they  had  received  from  the  stockholders;  so  that 
for  the  use  of  their  notes,  which,  intrinsically,  were 
of  no  value  at  all,  the  stockholders  of  these  two  banks 
have  drawn  from  the  people,  by  way  of  interest, 
something  like  §200,000  annually.^’ 

10^ 


114 


A TREATISE  ON 


CHAPTER  X. 

ON  THE  EFFECTS  OF  BANKS  DEALING  IN  EXCHANGE. 

The  proper  business  of  a bank  of  discount  is  to 
lend  money.  That  of  a bank  of  circulation  is  to  lend 
credit,  and  the  technical  idea  of  banking  excludes  all 
trarisactions  other  than  that  of  lending.  This  was 
formerly  so  well  understood  in  the  United  States, 
that  the  discounting  of  notes  or  acceptances  payable 
on  the  spot  was  the  sole  mode  in  which  the  capital 
and  credit  of  the  banks  were  employed;  and  if,  by 
way  of  accommodating  their  customers  they  occa- 
sionally discounted  a note  or  acceptance  payable  at  a 
distant  place,  it  was  always  done  upon  the  same 
terms  as  if  it  were  payable  on  the  spot,  the  banks  not 
calculating  upon  any  profit  in  the  way  of  exchange, 
but  relying  upon  getting  their  money  back  again  by 
supplying  another  customer  with  a check  or  draft  at 
par.  The  ordinary  exchange  transactions  between 
different  cities  and  states  were  left  to  individual  com- 
petition which  established  the  market  rate,  as  it  does 
in  all  other  countries  of  the  world,  and  as  it  must 
invariably  do  wherever  it  is  not  interfered  with  by 
artificial  causes. 

Such  was  the  state  of  things  that  existed  prior  to 
the  establishment  of  the  late. bank  of  the  United 
States.  That  institution,  at  some  period  subsequent 
to  the  commencement  of  its  operations  in  February, 
1817,  entered  upon  the  business  of  a dealer  in  inland 
bills  of  exchange  by  buying  and  selling  bills  upon  all 
points  where  its  branches  were  located,  upon  terms 
that  gave  it  a profit  on  the  transaction.  Tliis  prac- 
tice probably  gave  rise  to  the  general  custom  now 
prevailing  amongst  banks  of  buying  and  selling  bills 
of  exchange;  and  as  the  custom  appears  to  be  one 
which  facilitates  the  operations  of  trade,  the  public 


CURRENCY  AND  BANKING. 


115 


has  overlooked  the  mischief  which  results  from  its 
exercise.  It  is  of  this  mischief  I now  propose  to 
speak,  and  I beg  the  reader’s  attention  to  the  remarks 
I am  about  to  offer. 

It  has  been  shown,  in  the  chapter  on  exchange, 
that  the  competition  of  the  market  will  always  settle 
the  rate  of  premium  or  discount  on  bills,  according  as 
the  proportion  may  vary  between  the  supply  and  the 
demand.  Nobody  need  ever  be  apprehensive  that 
the  rate  can  ever  be  forced  unreasonably  high  by  the 
combination  of  sellers,  or  forced  unreasonably  low 
by  the  combination  of  buyers.  Each  party  has  his 
remedy,  as  we  have  shown,  against  undue  exactions, 
by  the  right  that  can  never  be  taken  from  him,  of 
transmitting  coin  instead  of  a bill.  Under  this  free 
competition  of  the  market,  it  must  be  manifest  that 
the  profit  on  bills,  where  there  is  one,  goes  into  the 
pockets  of  the  right  people,  that  is,  of  those  who  are 
fairly  entitled  to  it;  and  that  the  loss  on  bills,  where 
there  is  one,  also  falls  upon  the  right  people,  that  is, 
upon  those  who  ought  to  bear  it;  and  in  this  manner 
equal  justice  is  done  to  every  individual,  and  the  com- 
mercial wealth  is  consequently  distributed  through 
the  natural  and  legitimate  channels.  If,  at  one  sea- 
son of  the  year,  for  instance,  bills  at  Natchez  on  New 
York  sell  for  two  per  cent,  premium,  this  advantage 
fairly  belongs  to  the  seller.  If  at  another  season 
they  sell  at  two  per  cent,  discount,  this  loss  goes  into 
the  pocket  of  the  buyer  of  the  bill  as  a profit,  and 
fairly  belongs  to  him.  Any  one,  however,  can  per- 
ceive that  this  question  of  profit  and  loss  on  exchange 
is  a private  aftair  between  one  set  of  dealers  and 
another,  and  as  far  as  the  public  is  concerned,  it  is  a 
matter  in  which,  as  a body,  they  have  no  interest. 
It  is  of  no  sort  of  consequence  to  the  community  at 
large,  whether  the  rate  of  exchange  on  inland  bills  is 
at  the  maximum  or  minimum  price,  or  whether  A 
or  B puts  a profit  into  his  pocket,  but  it  is  of  great 
consequence  to  the  community  that  the  profit  should 


M6 


A TREATISE  ON 


go  into  the  right  pockets,  and  that  the  inland  ex- 
changes should  be  carried  on  at  the  least  possible 
expense  to  the  country. 

Let  us  now  see  how  far  the  interference  of  banks 
in  the  operations  of  exchange  disturbs  the  natural 
course  of  things. 

And  here  I will  remark,  in  the  first  place,  that  the 
competition  of  banks  operates  upon  the  bill  market 
in  a manner  wholly  different  from  that  of  individuals, 
owing  to  the  power  they  possess  of  contracting  the 
currency  when  they  want  to  buy,  and  of  expanding 
it  when  they  want  to  sell.  By  the  exercise  of  this 
power  they  can  accomplish  what  individuals  cannot 
accomplish,  for  these  latter,  having  but  a <given 
amount  of  money  to  purchase  with,  cannot  augment 
its  quantity  at  pleasure,  and  their  influence  in  the 
general  competition,  therefore,  can  only  be  propor- 
tioned to  their  actual  cash.  Can  any  one  doubt  the 
operation  of  this  principle  who  has  noticed  the  effect 
upon  the  price  of  cotton,  universally  admitted  to  have 
existed  throughout  the  cotton  growing  states,  during 
the  years  1837  and  1838,  by  the  dealings  of  banks  in 
the  purchase  of  cotton?  Does  not  every  body  know 
that  the  price  of  cotton  was  kept  a cent  or  more  per 
pound,  by  the  issues  of  banks,  higher  than  individual 
competition  could  have  kept  it?  And  if  so  great  a 
rise  as  ten  or  fifteen  per  cent,  could  be  created  in  cot- 
ton, is  it  not  easy  to  be  seen  how  readily  a rise  in  the 
rate  of  inland  bills  of  exchange,  of  a quarter  or  half 
per  cent.,  could  be  effected? 

The  mischievous  tendency,  however,  of  banks  deal- 
ing in  exchange,  is  greatly  augmented  where  banks 
have  branches,  or  enter  into  extensive  combinations 
for  a united  system  of  action.  Let  us,  for  instance, 
suppose  a large  bank  in  a northern  citiy  with  branches, 
or  agencies  at  the  principal  southern  ports,  of  suf- 
ficient extent  of  capital  to  operate  upon  the  value  of 
the  currency  at  those  ports.  Let  us  suppose,  the 
mother  bank,  at  the  seasons  for  shipments  of  cotton 


CURRENCY  AND  BANKING. 


117 


to  the  north,  to  give  orders  to  its  branches  to  buy  the 
bills  drawn  upon  those  shipments  at  the  cheapest 
rates  that  they  can  be  obtained  at.  Any  one  can 
perceive  at  a glance,  that  the  withholding  of  discounts 
for  a few  days,  will  make  money  scarce,  and  thereby 
depress  the  price  of  bills  below  the  previous  rate.  At 
this  new  price  the  branches  may  buy,  and  transmit 
these  bills  to  the  mother  bank,  which  in  a short  time 
after  is  drawn  upon  by  the  branches  at  a higher  rate 
of  exchange,  which  they  were  enabled  to  obtain  by 
making  money  plenty,  whilst  in  the  case  of  the  pur- 
chase of  foreign  bills  drawn  upon  shipments  of  cotton 
to  Europe,  the  mother  bank  by  adopting  the  same 
expedient,  or,  what  amounts  to  the  same  thing,  by 
selling  those  bills  on  a credit  at  a higher  price  than 
the  current  cash  rate  with  interest  added,  makes  an 
additional  profit.  That  such  expedients  as  are  here 
brought  into  view,  may  be,  if  they  have  not  already 
been,  practised  by  some  of  our  banks  can  hardly  be 
questioned,  and  the  mischief  thence  resulting,  far 
more  than  counterbalances  all  the  benefit  to  indivi- 
duals which  an  equalising  of  the  exchanges  can  pos- 
sibly accomplish. 

But  it  may  be  said,  that,  without  the  agency  of 
banks,  there  would  not  be  the  same  facility  in  nego- 
tiating bills.  This  objection  is  not  borne  out  by  the 
experience  of  Europe,  where  bills  of  exchange  can 
at  all  times  and  at  all  places  be  negotiated  upon  the 
most  favorable  terms,  through  individual  capitalists, 
who  have  no  control  over  the  currency  in  augmenting 
or  diminishing  its  quantity;  and  there  is  not  the 
slightest  reason  for  supposing  that  equal  facilities 
would  not  exist  in  this  country  through  private  com- 
petition, if  the  ground  were  not  already  occupied  by 
banks  possessing  by  their  very  power  of  expansion 
and  contraction,  the  ability  to  annihilate  all  private 
competition.  It  may  also,  perhaps,  be  said,  that  the 
agency  of  banks  between  buyers  and  sellers  is  af- 
forded at  a cheaper  rate  than  that  of  individual  capi- 


118 


A TREATISE  ON 


talists  would  be.  This  assertion  may  very  well  be 
doubted,  when  we  reflect  upon  the  monopoly  the 
banks  at  present  enjoy,  and  the  facility  that  exists  for 
their  combining  to  fix  prices;  and  even  if  it  were 
true,  the  small  advantage  gained  by  this  circumstance 
would  be  greatly  overbalanced  by  the  mischievous 
power  to  which  1 have  alluded,  of  depressing  or  rais- 
ing the  market  price  of  bills,  by  contractions  and  ex- 
pansions of  the  currency. 

It  is,  however,  in  the  interference  with  the  foreign 
exchanges  of  a country  that  the  power  of  banks  is 
most  to  be  deprecated.  Upon  this  subject,  the  author 
advanced  some  views  in  an  essay  published  by  him 
in  the  year  1828,  which  so  entirely  correspond  with 
those  which  he  at  present  entertains,  that  he  has  con- 
cluded to  transcribe  them,  rather  than  to  adopt  any 
new  phraseology.  The  essay  was  in  answer  to  one 
written  a short  time  before,  by  a friend  of  the  Bank 
of  the  United  States,  with  the  design,  amongst  other 
things,  of  showing  the  importance  to  the  country  of 
the  power  exercised  by  the  bank  of  dealing  in  ex- 
change.'* The  following  are  extracts: 

^•This  is  the  course  that  matters  take  under  a cur- 
rency composed  entirely  of  coin,  or  a sound  mixed 
currency  composed  of  coin  and  paper  exchangeable 
for  coin,  but  it  must  be  kept  in  mind,  that  under  such 
a currency,  actual  shipments  of  specie  from  one 
country  to  another,  do  not  take  place  to  any  very 
great  extent.  A very  slight  comparative  diminution 
of  the  quantity  of  coin  circulating  in  a country, 
creates  a scarcity  of  money,  and  this  operates  very 
soon  upon  the  prices  of  all  commodities,  by  reducing 
them  in  the  market.’^ 

This  partial  export,  however,  and  tendency  of 

* The  essay  last  mentioned,  appeared  in  the  National  Ga- 
zette, of  10th  April,  1828,  under  the  title  of  “The  Currency.” 
The  reply  was  published  in  the  Philadelphia  Gazette,  of  17th 
April,  1828,  under  the  title  of  “ On  Exchange.”  Both  essays 
were  republished  in  the  Free  Trade  Advocate  in  1829> 


CURRENCY  AND  BANKING. 


119 


the  coin  to  go  abroad,  is  the  only  check  upon  over- 
trading. It  indicates  that  more  commodities  have 
been  imported  than  exported,  and  warns  the  importer 
of  an  approaching  fall  in  the  prices  of  the  articles  in 
which  he  deals,  which  induces  him  to  countermand 
or  diminish  his  orders,  and  in  the  next  year  to  import 
less;  and  this  operation  brings  back  the  small  quan- 
tity of  coin,  which,  by  its  removal,  had  diminished  the 
currency  below  the  quantity  which  was  requisite  to 
maintain  it  upon  a level  with  the  currencies  of  other 
countries.  From  this  view  of  the  subject,  it  is  appa- 
rent, that  exchange  may  be  looked  upon  as  the  beam 
of  a pair  of  scales ^ very  nicely  balanced^  and  em- 
ployed in  ascertaining  the  value  from  day  to  day  of 
the  imports  and  exports  of  a country.  The  slightest 
departure  from  the  equilibrium  shows  itself  in  the 
fall  and  rise  in  the  price  of  bills,  and  the  assayer  of 
the  mint  does  not  keep  his  eyes  more  steadily  fixed 
upon  the  balances  in  which  he  weighs  his  gold,  than 
should  the  merchants  keep  theirs  fixed  upon  the  rate 
of  exchange.’^ 

If  these  things  be  true,  it  would  seem  to  follow, 
that  the  most  free  and  unrestricted  competition  possi- 
ble in  the  bill  market,  would  be  the  best  calculated  to 
prevent  over-trading  in  the  banks  as  well  as  indi- 
viduals, for  from  such  free  competition  the  earliest 
indications  of  an  excess  of  imports,  or  of  a depreci- 
ating currency,  would  show  themselves.  That  the 
operation  of  the  Bank  of  the  United  States  is  to  inter- 
fere with,  and  to  a certain  extent  to  destroy  this  com- 
petition, and  consequently  the  check  which  ought  to 
be  suffered  to  operate  monthly^  weekly^  and  even 
daily  with  its  warning  voice,  is  admitted  in  the  fol- 
lowing sentence.  ‘ Its  principal  advantage,  and  that 
which  makes  the  bank  pursue  it,  is,  that  this  stock  of 
exchange  operates  like  a lever  to  keep  the  exchange 
market  easy,  to  prevent  the  excessive  price  of  bills, 
and  to  enable  the  merchants  to  calculate  with  reason- 
able probability  the  habitual  cost  of  their  remittances.’ 


120 


A TREATISE  ON 


By  this  language,  we  understand,  not  only  that  the 
bank  is  desirous  of  effecting  something  like  a steady 
price  in  exchange  throughout  the  year,  but  that  it 
does  actually  possess  the  power  so  to  do.  That  this 
power  is  not,  however,  always  exercised  in  such  a 
way,  as  to  prevent  ^ the  excessive  price  of  bills, ^ is 
evident  from  the  admitted  fact,  that  bills  on  London 
have  been  so  high,  that  a merchant  could  afford  to 
ship  dollars  at  a less  expense  than  the  premium  on 
bills,  and  indeed  so  much  less,  that  it  was  an  object  of 
speculation  to  ship  coin  for  the  sole  purpose  of  draw- 
ing bills  upon  it. 

^^We  cannot  therefore  but  conclude,  that  the  dealing 
in  bills  of  exchange  by  the  bank,  upon  the  principles 
professed,  removes  the  great  check  upon  over-trading 
and  over-issues  of  paper,  created  by  the  free  competi- 
tion of  the  exchange  market.  To  this  it  may  be 
replied,  how  can  a dealer  who  only  purchases  five 
millions  of  dollars  value  of  bills  in  a year,  disturb  the 
competition,  when  the  probable  amount  negotiated 
maybe  six  or  eight  times  that  amount?  We  answer, 
by  that  power  of  purchasing,  possessed,  but  not  of 
necessity  fully  exercised  by  the  bank,  which  is  known 
to  every  drawer  of  a bill,  and  also  by  that  moral 
influence,  which  silently  operates,  and  compels  the 
drawers  of  bills  to  keep  up  the  price  very  near  that 
fixed  by  the  bank,  through  fear  that  mercantile  dis- 
credit would  accompany  any  offer  to  draw  at  a price 
much  below  it.  The  fact,  however,  of  a control  over 
the  rate  of  exchange  is  admitted  in  the  above  quota- 
tion, and  therefore  needs  no  further  evidence  of  its 
existence. 

But  let  us  examine  and  see  whether  the  benefits 
flowing  from  this  dealing  in  exchange  by  the  bank, 
be  in  reality  such,  as  they  are  described  to  be,  by  the 
essay  in  question.  the  south  it  furnishes  capital 
for  facilitating  ti  ade,^  Does  this  mean,  that  because 
the  bank  is  a buyer  of  bills  in  that  quarter  of  the 
Union,  it  therefore  issues  more  bank  notes  than  are 


CURRENCY  AND  BANKING. 


121 


called  for  in  the  ordinary  course  of  discounts?  If  so, 
the  tendency  of  such  over  issues  is  to  depreciate  the 
currency,  and  wliatever  may  be  the  favor  done 
thereby  to  the  southern  planters,  factors  or  mer- 
chants, there  is  certainly  a positive  injury  inflicted 
upon  all  the  rest  of  the  community.  If,  however,  the 
tendency  be  not  to  enlarge  the  issues  of  bank  notes, 
how  is  any  capital  afforded  to  facilitate  trade,  in 
addition  to  that  which  would  be  procurable  by  the 
same  planters,  factors  or  merchants,  by  offering  for 
discount  the  promissory  notes  or  acceptances  of  in- 
dividuals, to  whom  their  bills  would  have  been  sold, 
if  the  bank  were  not  a dealer  in  exchange?  ‘To  the 
north  it  supplies  a safe  and  undoubted  remittance,^ 
This  is  unquestionably  true,  inasmuch  as  it  affords  to 
all  those  who  are  willing  to  pay  for  increased  security, 
an  opportunity  of  fulfilling  their  engagements  in 
Europe,  without  danger  of  defalcation.  This  benefit, 
which  by  the  way,  we  humbly  conceive  to  be  the 
only  real  one  of  a general  nature,  which  results  from 
the  power  of  the  bank  to  deal  in  exchange,  could, 
however,  be  conferred  by  the  bank  in  a way  far  less 
injurious  to  the  public,  than  the  one  now  pursued, 
and  that  would  be,  by  the  simple  operation  of 
guaranteeing  hills  for  a stipulated  commission, 

“'To  the  southern  merchants  it  affords  another 
buyer  of  bills,  to  the  northern  another  seller,  widen- 
ing in  both  cases  the  field  of  competition,^^  This 
to  be  sure  appears  plausible,  but  we  apprehend  will 
not  stand  the  test  of  analysis.  The  bank  it  would 
seem  goes  into  the  market  at  Richmond,  ( charleston. 
Savannah,  and  New  Orleans,  to  purchase  the  bills 
upon  Europe,  drawn  upon  the  shipments  of  produce 
made  from  those  ports.  The  immediate  buyers  of 
those  bills,  if  the  bank  was  not  a dealer  in  exchange, 
would  be,  either  the  importing  merchants  on  the  spot, 
or  the  importing  merchants  in  the  northern  cities. 
The  bank,  we  will  allow,  by  its  competition,  raises 
the  price  of  bills  above  what  it  would  otherwise  be, 
11 


122 


A TREATISE  ON 


because  it  is  a speculator  with  a large  capital,  which 
buys,  not  because  it  stands  in  need  of  bills,  but  because' 
it  is  sure  it  can  make  money  by  the  purchase,  owing 
to  its  power  of  controlling  the  market  price.  This, 
too,  we  will  admit,  benefits  the  drawer  of  the  bill,and 
perhaps  in  a very  trifling  degree  the  planter,  who 
gets  a better  price  for  his  crops  on  account  of  the  in- 
creased premium  on  bills.  But  is  not  the  importing 
merchant  of  the  south,  as  well  as  the  importing  mer- 
chant of  the  north,  injured  by  this  operation  precisely 
in  the  degree  that  the  others  are  benefitted?  Are  they 
not  compelled  to  give  more  for  their  bills,  than  they 
would  otherwise  have  given?  And  why  should  then 
an  institution,  in  its  nature^  merit  to 

itself,  for  taxing  one  portion  of  the  community  for  the 
benefit  of  another?  And  how  is  the  bank  a ‘new 
seller  to  the  north?^  Does  she  offer  any  more  bills  in 
the  northern  cities,  than  would  be  offered  there  for 
sale,  without  her  intervention?  We  apprehend  not 
to  the  value  of  a dollar.  She  occupies  the  mere  place, 
which,  without  her,  would  be  occupied  by  a number 
of  individuals;  and  it  is  self-evident  that  her  agency 
in  the  matter,  so  far  from  widening  the  field  of  com- 
petition^ actually  restricts  it,  and  raises  the  price  of 
exchange  as  much  above  what  it  would  be,  if  she 
were  not  a dealer  in  bills,  as  the  profit  she  obtains  by 
her  operations. 

“ But  after  all,  why  should  the  bank  undertake  to 
be  the  arbiter  of  exchange?  Why  should  she  be  par- 
ticularly careful  that  exchange  should  not  be  too  high, 
rather  than  that  it  should,  not  be  too  low?  As  far  as 
some  of  our  own  citizens  are  the  drawers,  and  others 
the  purchasers  of  bills,  it  is  of  no  sort  of  consequence  to 
the  public,  what  is  their  precise  rate.  To  the  parties 
themselves  it  is  indeed  of  moment,  inasmuch  as  what 
comes  out  of  the  pocket  of  one  goes  into  that  of  the 
other;  but  the  country  is  neither  richer  nor  poorer  for 
the  operation,  and  the  parties  themselves  are  quite  as 
able  to  adjust  the  rate  as  the  bank.  As  far,  however. 


CURRENCY  AND  BANKING. 


123 


as  bills  are  wanted  for  the  account  of  foreigners,  for 
goods  sold  in  the  country,  it  is  of  advantage  to  the 
country,  that  exchange  should  be  hi^h^  inasmuch  as 
thereby  the  balances  due  them  would  be  paid  by  a 
less  amount  of  bills.  But,  notwithstanding  this,  the 
bank  should  not  attempt  to  interfere  with  the  natural 
course  of  exchange,  any  more  than  a government 
should  interfere  with  the  natural  course  of  trade. 

^^Upon  every  view  of  the  subject  which  we  have 
been  able  to  take,  we  consider  all  profits  made  by  the 
bank  upon  its  foreign  exchange  transactions,  beyond 
the  amount  of  a fair  charge  for  guarantee,  and  bro- 
kerage for  bringing  buyers  and  sellers  together,  as  a 
tax  upon  the  consumption  of  the  country,  for  which 
no  equivalent  service  is  rendered.  We  also  consider 
that  its  dealing  in  exchange,  and  accumulating  large 
stocks  in  Europe,  which  can  only  be  done,  we  ap- 
prehend, by  extra  issues  of  paper  ^ prejudicial  to  the 
currency^  and  consequently  to  the  nation^  is  destruc- 
tive of  the  only  imaginable  check  upon  over-trading 
and  over-banking,  inasmuch  as  it  conceals  for  long 
periods  together,  the  real  state  of  the  competition  of 
the  market,  the  only  guide  by  which  merchants  and 
banks  can  regulate  their  transactions,  with  advantage 
to  the  country.  If  it  should  be  asked,  whether  there 
is  any  difference  in  the  effect  produced  by  the  opera- 
tions of  the  bank,  from  that  which  would  be  produced 
by  the  operations  of  private  speculators,  we  would 
reply,  that  there  is  a most  essential  one.  Indpendent 
of  the  powerful  force  of  a huge  capital,  which  gives 
a weight  in  the  market,  that  no  moderate  number  of 
our  citizens  could  bring  to  bear,  the  bank  after  it 
buys  bills,  has  power  to  make  an  addition  to  the 
currency,  the  immediate  effect  of  which  is  to  raise 
the  price  of  those  bills,  and  thus  afford  a profit  by 
their  sale.  Individual  speculators,  on  the  contrary, 
add  nothing  to  the  mass  of  the  currency,  and  their 
operations  must,  in  the  nature  of  things,  have  but  a 
very  slight  effect  upon  the  market  price  of  exchange.’^ 


124 


A TREATISE  ON 


CHAPTER  XL 

EXAMINATION  OF  THE  COMMON  OPINION  TPIAT  THE 
ESTABLISHMENT  OF  BANKS  IN  THE  WESTERN 
STATES,  UPON  EASTERN  CAPITAL,  IS  BENEFICIAL 
TO  THOSE  STATES. 

It  is  an  opinion  very  frequently  expressed,  that  the 
establishment  of  banks  in  the  western  and  south- 
western country,  has  been  a great  source  of  pros- 
perity to  the  cities  and  towns  where  they  have 
been  located  as  evinced  by  the  improvements  to 
which  they  have  given  rise,  and  by  the  com- 
mercial and  manufacturing  activity  that  has  been 
displayed.  Cincinnati,  Louisville,  Nashville,  Nat- 
chez, Vicksburg,  and  numerous  other  places,  it  is 
said,  owe  a large  share  of  their  prosperity  to  the 
establishment  of  banks;  and  as  these  have  all  been 
banks  of  circulation,  it  is  concluded  that  therefore 
banks  of  circulation  must  have  powers  to  create  na- 
tional wealth,  which  I have  denied  to  them.  Let  us 
examine  this  doctrine. 

It  has  been  shown  in  a former  chapter,  that  no- 
thing but  capital,  that  is,  something  possessing  an 
intrinsic  value,  can  possibly  be  the  means  of  setting 
industry  in  motion,  and  that  banks  have  not  the  power 
of  creating  such  capital  by  a mere  issue  of  promis- 
sory notes.  It  may,  then,  fairly  be  concluded,  that  as 
far  as  any  real  prosperity  has  been  ascribed  to  the 
circulating  principle  of  the  banks  established  in  the 
places  that  have  been  mentioned,  the  position  is  falla- 
cious, and  without  a shadow  of  foundation.  But,  at 
the  same  time,  1 am  prepared  to  admit,  that  as  far  as 
the  capitals  of  the  banks  referred  to  have  been  sub- 
scribed by  capitalists  residing  in  the  Atlantic  cities, 
those  cities  and  towns  have  reaped  all  the  benefits 
resulting  from  the  borrowing  of  a foreign  capital, 


CURRENCY  AND  BANKING. 


125 


whatever  they  may  be.  The  simple  fact  of  that  capi- 
tal’s being  nominally  what  is  called  “a  money  capi- 
tal,” is  of  no  sort  of  consequence  in  the  estimate  of 
the  benefits;  for^  in  truth,  although  subscribed  in 
money,  it  was  never  in  the  form  of  coin  in  the  actual 
possession  of  the  western  banks,  but  a fund  in  the 
Atlantic  cities,  drawn  upon  and  sold  to  the  western 
merchants  as  a remittance  to  pay  up  their  existing 
debts,  or  to  purchase  new  supplies  of  goods.  It  was 
thus  a capital  subscribed,  nominally  in  money,  but 
really  paid  up  in  dry-goods,  hardware,  and  groceries; 
and  the  effect,  therefore,  upon  the  prosperity  of  the 
western  towns,  was  precisely  the  same  as  that  of  ob- 
taining from  individual  merchants,  or  in  any  other 
way  upon  credit,  an  equal  amount  of  merchandise, 
with  this  difference,  that  the  credit  might  not  cost  as 
much  through  the  process  of  a bank,  as  if  obtained 
through  a purchase  of  goods  in  the  ordinary  way. 

This  difference  in  the  cost  of  the  credit,  however, 
is  all  the  benefit  that  the  western  cities  and  towns  can 
have  reaped  from  borrowing  foreign  capital  through 
bank  charters,  rather  than  through  the  orditiary  chan- 
nels of  purchasing  goods  on  credit.  What  it  may 
have  amounted  to,  it  is  not  easy  to  ascertain;  but  as  a 
set  off  to  it,  it  may  very  fairly  be  assumed,  that  in  the 
scramble  for  discounts  made  on  the  first  opening  of 
the  banks,  the  loans  of  capital  and  credit  were  not  as 
judiciously  made  for  the  general  interests  of  the 
country,  as  sales  of  merchandise  would  have  been 
by  the  eastern  merchants,  as  is  shown  by  the  fact 
that  immense  sums  were  loaned  to  planters  who 
embarked  in  speculations  in  lands  and  slaves,  and  to 
merchants  who  embarked  in  shipments  of  cotton,  and 
who  ultimately  became  embarrassed  or  ruined  by 
these  operations.  Every  one  remembers  that  the 
southwestern  banks  were  the  last  to  resume  specie 
payments  after  the  late  suspension;  and  it  is  well 
known  to  many,  that  they  were  only  enabled  to  do  it 
when  they  did,  by  borrowing  large  sums  from  the 
11^ 


126 


A TREATISE  ON 


eastern  cities,  or  by  the  emission  of  post  notes  payable 
at  distant  periods  with  which  they  absorbed  a part  of 
their  immediate  liabilities.  If  any  stronger  proof 
were  wanted  of  injudicious  and  improvident  loans  on 
the  part  of  many  of  those  banks,  it  may  perhaps  he 
found  in  the  second  failure  that  has  taken  place  with 
all  of  them  since  their  resumption  in  January,  1839, 
and  in  the  expression  of  public  opinion  manifested  on 
the  stock  exchanges  of  New  York  and  Philadelphia 
at  a recent  period,  which  places  the  stocks  of  all  of 
them  below  par,  and  of  some  of  them  very  con- 
siderably below  it.^  If  these  facts  be  conclusive  as 

* The  following  western  and  southwestern  bank  stocks  were 
sold  at  New  York  and  Philadelphia,  where  a large  amount  of 
them  are  owned,  between  the  1st  of  September,  1839,  and  the 
1st  of  January,  1840,  as  low  as  the  prices  specified  in  the  first 
column.  The  sales  at  Philadelphia  were  made  prior  to  the  sus- 
pension of  specie  payments  on  the  9th  of  October,  so  that  in 
both  cases  the  specie  price  is  given. 

The  second  column  gives  the  lowest  and  highest  prices  be- 
tween the  1st  of  January  and  the  1st  of  May,  1840. 


Per  cent. 

Per  cent. 

Capitals  paid. 

Lafayette  B’k,  Cincinnati, 

60 

no  sales. 

gl, 000, 000. 

Franklin  Bank,  “ 

65 

75  to  80 

1,000,000. 

Commercial  Bank,  “ 

no  sales. 

85  “ 

95* 

1,000,000. 

Ohio  Life  & Trust  Co.  “ 

65 

72  “ 

80 

628,594. 

Bank  of  Kentucky, 

54 

49  “ 

59 

4,679,404. 

Northern  B’k  of  Kentucky, 

80 

81  “ 

85* 

2,895,685. 

Louisville  Bank, 

80 

75  “ 

80* 

1,150,000. 

Illinois  State  Bank, 

Union  Bank  of  Tennessee, 

54 

55  “ 

64 

70 

64  “ 

73* 

2,554,939. 

Planter’s  Bank  of  Tenn. 
Planter’s  Bank  of  Missis- 

74 

72  “ 

75* 

2,247,985. 

sippi,  Natchez, 

50 

20  “ 

33* 

4,200,140. 

Commercial  Bank  of  Natchez, 

50 

1,507,750. 

Grand  Gulf  Bank  of  Miss. 

40 

36  “ 

37 

1,467,750. 

Vicksburgh  Batik,  Miss. 

22 

7 

17 

4,000,000. 

Memphis  Bank,  Tennessee, 

no  sales. 

65* 

535,333. 

N.  0.  Canal  & B’king  Co. 

n 

60  “ 

70 

4.000. 000.. 

3.000. 000. 

“ “ Commercial  Bank, 

u 

70 

‘‘  “ Gas  Bank, 

(( 

34* 

1,854,455. 

* These  sales  were  made  at  Philadelphia,  in  paper  currency,  depreciated 
from  8 to  5 per  cent.,  the  range  between  January  and  May. 


CURRENCY  AND  BANKING. 


127 


to  indiscreet  and  improvident  loans,  all  the  mischief 
which  I have  in  other  parts  of  this  work  traced  to  the 
same  cause  in  other  places,  must  be  equally  predi- 
cated of  the  western  and  southwestern  banks;  and  it 
will  not  perhaps  be  difficult  for  the  reader  to  admit, 
that  all  the  benefit  which  the  western  and  south- 
western states  have  derived  from  the  establishment 
amongst  them  of  banks  constructed  upon  foreign 
capital  over  and  above  the  benefits  which  those  states 
would  have  derived  from  their  merchants  buying  and 
selling  an  equal  amount  of  foreign  goods  on  credit, 
has  been  more  than  counterbalanced  by  the  evils 
resulting  from  incautious  loans  of  capital  and  credit. 


CHAPTER  XII. 

ON  THE  CIRCULATION  OF  SMALL  BANK  NOTES. 

It  must  be  manifest  to  all  who  will  reflect  upon  the 
subject,  that  the  currency  of  the  United  States  is 
exposed  to  dangers  from  over-expansions  to  which 
that  of  Great  Britain  is  not  in  the  same  degree  liable. 
The  distance  from  the  American  to  the  European 
continent  is  so  great,  that  even  after  the  general 
establishment  of  steam  packets,  a month  would  be 
requisite  for  obtaining  a supply  of  the  precious  metals 
under  a panic,  which  could  be  obtained  in  England 
from  the  adjacent  parts  of  the  continent  in  four  or 
five  days,  and  it  would  therefore  seem  to  be  sound 
policy  for  the  state  legislatures  of  our  Union  to  autho- 

It  is  supposed  that  at  least  fifteen  millions  of  dollars  of  Phila- 
delphia and  New  York  capital  have  been  invested  in  the  stocks 
of  the  western  and  south-western  hanks  and  internal  improve 
ment  companies,  but  chiefly  in  banks,  which  accounts  in  some 
degree  for  the  present  embarrassment  of  those  two  cities. 


128 


A TREATISE  ON 


rise  no  measures  to  be  pursued  by  our  banks  which 
can  have  a tendency  to  diminish  the  metallic  basis  of 
our  paper  currency  so  greatly,  as  to  endanger  its  con- 
vertibility. It  is  self-evident,  that  just  in  proportion 
to  the  diminutive  size  of  bank  notes  authorised  in  a 
country,  will  be  the  supply  and  consequent  circula- 
tion of  gold  and  silver.  In  France,  where  no  bank 
note  is  allowed  to  be  issued  of  a less  denomination 
than  five  hundred  francs,  (equal  to  about  ninety-four 
dollars  of  our  money,)  the  whole  of  the  retail  transac- 
tions of  a community  of  tliirty  millions  of  people, 
nearly  double  our  population,  are  carried  on  by  the 
precious  metals. In  England,  no  note  of  a less 
denomination  than  five  pounds  sterling  (equal  to 
twenty-four  dollars  and  upwards,)  can  be  issued  by 
the  Hank  of  England,  or  by  any  joint-stock  or  private 
bank;  so  that  in  that  country  too,  the  minor  channels 
of  circulation  are  kept  well  filled  with  gold,  so  that 
on  any  emergency,  a large  fund  can  be  made  avail- 
able to  meet  any  reaction  of  the  banking  system, 
before  the  necessity  occurs  of  ordering  bullion  from 
abroad. 

In  the  United  States,  unfortunately,  the  blindness 
of  the  legislatures  and  the  public,  and  the  avarice  of 
the  bankers,  has  at  all  times,  since  the  existence  of 
banks,  led  to  the  emission  of  notes  of  a much  less 
denomination.  With  the  exception  of  the  Bank  of 
the  United  States,  incorporated  by  congress  in  1816, 
and  the  Pennsylvania  Bank  of  the  United  States, 
chartered  in  1836,  which  were  not  allowed  to  issue 
notes  of  a less  denomination  than  ten  dollars,  and  of 
the  new  bank  of  Missouri,  which  can  issue  none  of  a 
less  denomination  than  twenty  dollars,  there  has  pro- 
bably been  no  bank  chartered  by  any  of  the  states 
which  has  not  been  authorised  to  issue  five  dollar 

* Silver  is  ^virtually  the  currency  of  France.  Gold  being 
undervalued  at  the  mint  in  relation  to  silver,  commands  a small 
premium  in  the  market,  when  wanted  for  travellers  or  exporta- 
tion. 


CURRENCY  AND  BANKING. 


129 


notes.  The  consequence  of  this  policy  has  been, 
that  the  stock  of  the  precious  metals  in  the  country 
has  at  all  limes  been  much  less  than  it  would  have 
been,  had  the  policy  intended  by  congress  in  1816 
been  preserved  by  the  state.  I say intended’’ be- 
cause the  prohibition  was  evaded  by  the  isstie  by  the 
bank,  of  checks  for  live  dollars  drawn  by  the  branches 
upon  each' other,  which  answered  all  the  purposes  of 
five  dollar  notes. 

But  although,  by  the  exclusion  of  all  notes  of  a less 
denomination  than  ten  dollars,  the  security  of  our 
paper  currency  would  be  greatly  strengthened  in  case 
of  an  unexpected  panic,  yet  the  design  of  this  chapter 
is  more  particularly  to  inveigh  against  the  growing 
propensities  in  some  of  our  legislative  bodies  to  author- 
ise the  emission  of  notes  of  a denomination  less  even 
than  five  dollars,  a policy  which,  if  adopted  by  all  the 
states,  will  fill  not  only  all  the  arteries  of  circulation, 
but  even  the  very  smallest  veins,  with  paper,  and 
drive  from  the  country  the  few  coins  which  the  five 
dollar  notes  have  spared. 

A short  sketch  of  the  history  of  small  bank  notes 
may  not  be  without  interest. 

Prior  to  the  suspension  of  specie  payments  in 
August,  1814,  I am  not  aware  that  any  notes  of  a 
less  denomination  than  five  dollars  were  any  where 
issued,  although  there  may  have  been  in  a few  of  the 
states.  By  that  event,  specie  disappeared  wholly 
from  circulation  in  all  the  states  except  those  of  New 
England,  where  the  banks,  coerced  by  efficient  laws 
and  public  opinion  combined,  continued  to  fulfil  their 
engagements,  and  its  place  was  supplied  by  emissions 
of  notes  by  banks  from  three  dollars  down  to  twenty- 
five  cents,  some  with  the  sanction  of  law,  granted  for 
the  especial  occasion,  and  some  without  it;  and  by 
other  emissions  from  all  sorts  of  corporations,  public 
officers,  private  institutions,  and  even  by  individuals, 
who  generously  accommodated  the  public  with  their 
credit  for  sums  as  small  as  five  cents,  in  the  hope  that 


130 


A TREATISE  ON 


the  notes  would  be  worn  out  or  lost,  and  that  they 
should  never  be  troubled  with  a demand  for  their 
payment.  This  wretched  state  of  things  continued 
for  some  time  after  the  restoration  of  specie  payments 
in  February,  1817.  An  incubus  appeared  to  be  fast- 
ened upon  the  community,  which  no  combination  of 
individuals  could  shake  off,  and  which  continued  for  a 
longer  or  shorter  time,  according  as  legislative  inter- 
ference was  delayed.  In  Pennsylvania,  where,  from 
the  multiplicity  of  banks,  this  evil  was  of  great  mag- 
nitude, an  act  was  passed  on  the  22d  of  March,  1817, 
prohibiting,  under  a penalty,  the  emission  or  circula- 
tion of  any  notes  or  tickets  in  the  nature  of  bank 
notes,  of  a less  denomination  than  five  dollars,  ex- 
cepting by  banks  duly  authorised;  and  also  prohibit- 
ing, after  the  first  day  of  October  following,  any  bank 
from  issuing  such  notes:  a privilege  which  had  been 
granted  by  act  of  28th  December,  1814.  This  law, 
being  partially  carried  into  effect,  expelled  from  circu- 
lation the  principal  part  of  the  miserable  trash  against 
which  it  was  directed,  and  the  silver  fractions  of  a 
dollar  began  to  make  their  appearance  from  the  pock- 
ets and  strong  boxes  of  the  public,  where  they  had 
been  concealed  for  near  three  years.  Still  the  cure 
was  not  complete,  owing  to  evasions  of  the  law, 
and  to  the  introduction  of  small  notes  and  tickets  of 
neighboring  states.  The  banks  of  Pennsylvania, 
having  ceased  after  the  first  of  October  to  issue  notes 
of  a less  denomination  than  five  dollars,  the  neighbor- 
ing states  of  Delaware,  New  Jersey,  and  New  York, 
sent  us  an  abundant  supply  and  the  chief  effect  of  the 
law  appeared  to  be,  not  to  give  us  a circulation  of 
specie  in  the  place  of  small  notes,  but  to  fasten  upon 
us  a set  of  notes  not  known  to  the  public,  for  another 
set  that  was  known.  And  yet,  with  this  fact  staring 
them  in  the  face,  the  Senate  of  Pennsylvania  rejected, 
by  a vote  of  16  to  15,  on  the  9th  of  March,  1820,  a 
bill  introduced  into  that  body  by  the  author,  who  was 
then  a member,  prohibiting  the  circulation  of  all  notes 


CURRENCY  AND  BANKING. 


131 

of  a less  denomination  than  five  dollars,  wheresoever 
or  by  whomsoever  issued. 

After  the  defeat  of  this  measure,  which  was  op- 
posed most  strenuously  on  the  ground  that  if  the  small 
notes  were  expelled,  the  people  in  the  interior  where 
they  chiefly  circulated,  would  be  wholly  destitute  of 
change;  and  advocated  on  the  ground,  that  so  far  from 
this  being  the  effect,  the  immediate  and  necessary 
consequence  would  be,  that  every  man  who  had  in 
his  pocket  a dollar  in  paper  would  find  it  instantly 
converted  into  a dollar  in  silver,  the  subject  was  per- 
mitted to  sleep  for  a number  of  years;  and  it  was  not 
until  the  12th  of  April,  1S2S,  that  Pennsylvania  was 
convinced  of  the  impolicy  of  a measure  Vv^hich  pre- 
vented specie  from  flowing  in  upon  her  citizens.  The 
act  of  that  date  fixed  upon  the  1st  of  January,  1829, 
as  the  period  for  enforcing  the  prohibition,  and  it  was 
not  without  great  apprehensions  of  a repeal  before 
the  appointed  day,  that  the  friends  of  a wholesome 
currency  saw’  numerous  petitions  with  that  object  pre- 
sented to  the  legislature  in  the  preceding  month  of 
December.  Happily,  however,  these  evidences  of 
ignorance  and  folly  were  disregarded  by  the  legisla- 
ture. The  law  went  into  operation,  the  flood  of  fo- 
reign paper  w^as  forced  back  upon  its  issuers,  and,  as 
if  by  magic,  silver  was  immediately  seen  to  circulate 
in  abundance  in  those  counties  where  before  there 
was  nothing  but  paper. 

The  successful  issue  of  this  experiment  in  Pennsyl- 
vania was  followed  in  subsequent  years  by  a number 
of  other  states,  wfliich  in  turn  proscribed  notes  under 
five  dollars;  and  their  total  expulsion  from  all  the  states 
of  the  Union  might  reasonably  have  been  expected 
in  the  course  of  a few  years,  had  it  not  been  for  the 
unfortunate  suspension  of  specie  payments  in  May, 
1837,  which  again  deluged  the  country  from  one  end 
to  the  other  with  a flood  of  small  notes  and  tickets, 
from  three  dollars  down  to  five  cents,  and  extinguished 
in  some  of  our  legislatures  the  lights  of  science  which 


132 


A TREATISE  ON 


SO  much  pains  had  been  for  so  many  years  taken, 
by  the  intelligent  few,  to  kindle  into  a flame.  New 
York  has  backslided  by  authorising,  by  a recent  act, 
the  emission  by  her  own  banks  of  notes  of  a less  de- 
nomination than  five  dollars,  and  as  far  as  she  is  con- 
cerned, has  proclaimed  her  unwillingness  to  assist  in 
retaining  in  the  country  a proper  specie  basis  for  the 
huge  mass  of  paper  money  which  her  banks  fabricate. 
The  state  of  Maine,  too,  has  flillen  off  by  a similar  re- 
creant step,  and  indications  have  also  elsewhere  ap- 
peared of  a similar  delinquency.  Still  it  is  to  be  hoped 
that  this  retrograde  movement  will  be  of  limited 
extent,  and  that  the  example  of  those  states  which 
entertain  sounder  views  of  a currency  will  ultimately 
operate  upon  the  rest,  and  convince  them  that  the 
profit  of  private  corporations  should  never  be  made  to 
outweigh  the  substantial  interests  of  the  community, 
by  placing  the  stability  of  the  currency  in  a constant 
state  of  jeopardy.^ 

* During  the  suspension  of  specie  payments  which  commenced 
on  9th  October,  1839,  and  which  still  continues  in  all  the  States 
south  and  west  of  New  York,  small  notes  as  low  as  ®1,  issued 
by  the  hanks  of  Delaware  and  New  Jersey,  have  been  current 
in  Pennsylvania.  No  notes  under  five  dollars  having  been 
issued  by  bank  corporations  or  individuals  in  Pennsylvania. 


CURRENCY  AND  BANKING. 


133 


BOOK  THE  THIRD. 

OF  THE  LAWS  WHICH  REGULATE  A CURRENCY  COM- 
POSED ENTIRELY  OF  INCONVERTIBLE  BANK  PAPER. 

In  the  first  book  I described  the  operation  of  a cur- 
rency purely  metallic,  and  in  the  second  that  of  a 
mixed  currency  of  coin  and  bank  notes  strictly  con- 
vertible on  demand  into  coin.  I come  now  to  describe 
the  operation  of  a currency  consisting  wholly  of  incon- 
vertible bank  paper. 

It  has  been  shown  that  under  a currency  purely 
metallic,  the  fluctuations  which  can  take  place  in  its 
quantity  and  value  are  circumscribed  within  narrow 
limits,,  and  that  consequently  the  greatest  possible 
stability  which  the  nature  of  things  will  admit,  exists 
in  the  operations  of  commerce.  It  has  also  been  shown, 
that  under  banks  of  circulation  conducted  upon  the 
principle  of  strict  convertibility,  although  there  is  an 
occasional  liability  to  temporary  fluctuations,  yet  that 
these  are  not  perhaps  so  great  as  altogether  to  neu- 
tralise the  benefits  which  the  community  derives  from 
their  operations.  It  is  only  when  banks,  by  their  in- 
ordinate expansions,  destroy  convertibility  and  endan- 
ger their  solvency,  or  what  is  worse,  bring  on  a gene- 
ral stoppage  of  specie  payments,  that  they  are  guilty 
of  high  offences  against  the  community,  and  are  justly 
obnoxious  to  the  charge  of  inflicting  misery  on  the 
country.  Previous,  however,  to  examining  the  ope- 
rations of  a currency  after  a suspension  by  the  banks, 
I will  call  the  attention  of  the  reader  to  that  state  of 
delusion  and  apparent  prosperity  which  invariably 
precedes  it,  and  which,  with  sagacious  minds,  is  easily 
distinguished  from  a state  of  real  prosperity. 

12 


134 


A TREATISE  ON 


CHAPTER  I. 

OF  THE  CAREER  USUALLY  RUN  BY  BANKS  OF  CIRCULA- 

TION  PREVIOUS  TO  A GENERAL  STOPPAGE  OF  PAY- 

MENT. 

Having  shown  that  banks  of  circulation,  as  such, 
neither  create  nor  lend  capital,  and  that  what  they  do 
lend  is  their  credit,  by  means  of  which  the  capital  of 
individuals  is  circulated  with  more  facility  and  less 
security  than  it  would  be  without  their  instrumentality, 
I come  now  to  examine  this  question,  upon  which 
most  of  the  popular  delusion  hangs:  Does  not  the 

increased  activity  given  to  business,  occasioned  by 
banks  lending  their  credit  very  freely,  tend  to  the  pro- 
motion of  public  prosperity,  and  to  the  production  of 
wealth,  faster  than  would  otherwise  take  place?  The 
answer  will  appear  in  the  sequel,  and  will  not  be 
found  in  accordance  with  the  cherished  opinions  of  the 
day. 

By  the  operation  of  such  bank  issues  the  credit  of 
the  banks  is  placed  at  the  disposal  equally  of  all  who 
borrow  from  them.  Consequently,  the  inexperienced, 
the  unskilful,  the  incautious,  and  the  speculative,  are 
placed  upon  a level,  in  their  purchases,  with  the  ex- 
perienced, the  skilful,  and  the  prudent.  The  result  of 
this  equality  is,  that  some  men  are  able  to  buy  who 
before  were  not  able  owing  to  a deficiency  of  credit.* 
More  competitors  are  brought  into  the  market,  and 
prices  rise  from  the  spirit  of  speculation,  which  never 
fails  to  be  engendered  by  the  facility  of  procuring  the 
means  to  speculate  with.  In  addition  to  this  local  rise 

* This  is  especially  the  case  where  banks  of  circulation  are 
established  with  little  or  no  capital,  or  where  the  directors  lend 
the  credit  of  the  bank  to  themselves,  of  which  such  numerous 
examples  have  been  lately  furnished,  in  Massachusetts,  Missis- 
sippi, Louisiana,  and  other  states. 


CURRENCY  AND  BANKING. 


135 


which  takes  place  from  the  competition  of  new  deal- 
ers in  the  immediate  neighborhood  of  the  banks,  a 
general  rise  takes  place  from  the  expansion  of  the 
currency,  owing  to  the  abundance  of  the  paper  which 
has  been  thrown  amongst  the  community  by  the  ori- 
ginal borrowers  from  the  banks.  This  rise  goes  on 
with  every  new  emission  of  paper,  and  appearing  to 
the  public,  which  is  not  acquainted  with  the  internal 
operations  of  banks,  like  an  increase  in  value^  the 
spirit  of  speculation  is  excited  amongst  all  classes  of 
the  community,  and  purchases  are  made  for  no  other 
reason  than  that  the  buyers  suppose  they  can  sell  the 
next  day  at  a profit.  Industrious  persons  abandon 
productive  employments  to  pursue  speculation,  which, 
however  profitable  it  may  be  to  the  successful  opera- 
tor, does  not  at  all  add  to  the  wealth  of  the  community, 
seeing  that  what  is  gained  by  one  man  is  lost  by 
another.  Extravagance  and  luxury  are  increased  in 
proportion  to  the  increasing  abundance  of  paper  credits, 
because,  as  prices  rise,  all  who  have  property  or  com- 
modities on  hand  think  they  are  getting  richer  every 
day.  Merchants  embark  in  more  extensive  enterpri- 
ses; manufacturers  extend  their  establishments;  farm- 
ers build  houses  that  are  not  wanted,  and  ornament 
their  farms;  railroads,  canals,  and  every  other  species 
of  internal  improvement,  are  prematurely  projected. 
All  these  operations  give  employment  to  the  laboring 
classes,  and  for  a time  exhibit  the  semblance  of  accu- 
mulating wealth.  Every  new  sale  of  property  or 
commodities  on  credit  creates  new  promissory  notes 
or  obligations,  and  these  create  a new  demand  for 
more  discounts,  whilst  more  currency  is  required  to 
circulate  the  same  commodities  at  their  augmented 
price. ^ 

* Abundant  evidence  of  the  truth  of  this  proposition  is  fur- 
nished by  the  treasury  documents  in  reference  to  the  augmenta- 
tion of  the  currency  which  took  place  during  the  two  years  which 
preceded  the  general  stoppage  in  May,  1837,  as  will  appear  from 
the  following  statement,  giving  the  amount  of  the  circulation 


136 


A TREATISE  ON 


But  there  is  a final  limit  to  this  delusion.  The  de- 
preciation of  the  currency  has  become  so  great,  from 
these  extraordinary  issues,  that  timid  people  become 
alarmed,  and  make  a run  upon  the  banks,  whilst  coin 
is  also  demanded  for  exportation.  The  banks  are 
called  upon  to  pay  their  notes,  and  they  in  turn  call 
upon  their  debtors,  who  are  by  this  means  first 
awakened  from  their  dreams.  Money  becomes  scarce, 
and  prices  of  property  and  commodities  fall.  The 
operation  which  the  banks  require  is  merely  that  those 
with  whom  they  exchanged  notes  upon  such  unequal 
terms,  shall  exchange  back  again.  But  with  this  de- 
mand the  merchant  cannot  comply,  because  he  has 
long  since  parted  with  his  bank  notes,  and  has  in 
their  place  a store  full  of  goods,  which  he  has  been 
induced  to  import  or  purchase,  on  account  of  the  high 
prices  created  by  the  issues  of  the  banks,  but  which 
he  cannot  now  sell  without  a loss  that  will  render 
him  insolvent.  Or  he  has  parted  with  his  bank  notes 
in  exchange  for  goods  which  he  has  sold  to  country 
merchants,  who  cannot  pay  him  owing  to  the  fact  that 
the  planters  or  farmers  whom  they  trusted  have  over- 
planted or  over-farmed,  or  over-speculated  in  lands, 
or  over-expended.  The  manufacturer  pleads  the 
same  inability,  because  the  same  high  prices  and  ap- 
pearance of  universal  prosperity  induced  him  to  erect 
buildings  and  machinery,  not  required  under  a dimi- 
nished demand  for  goods,  which  he  cannot  now  dis- 
pose of  at  any  price;  whilst  the  farmer  or  planter 
confesses,  that  the  temporary  rise  in  the  prices  of  land 
agricultural  produce,  and  slaves,  which  he  thought 
was  a permanent  rise  in  value^  had  induced  him  to 

and  deposites  of  all  the  banks  in  the  United  States,  according  to 
returns  nearest  to  the  periods  mentioned. 

Circulation,  Deposites.  Totals. 

Jan,  1,  1835,  Jgl03,693,495  ^83,081,365  ^186,773,860 

Jan.  1,  1836,  140,301,038  115,104,440  355,405,478 

Jan.  1,  1837,  149,186,890  137,397,185  376,584,075 


CURRENCY  AND  BANKING. 


137 


invest  in  unproductive  improvements  on  his  estate, 
and  in  the  purchase  of  slaves  and  new  lands,  the 
notes  which  he  had  received  from  the  banks;  or,  that 
his  belief  in  his  apparently  growing  wealth  had  led 
him  into  extravagance  and  luxurious  expenditures. 

The  speculators  in  railroads  and  canals,  who  sub- 
scribed to  those  improvements,  not  because  they  had 
capital  to  invest,  but  because  they  fancied  that  the 
delusion  under  which  they  labored  was  a reality,  and 
that  consequently  they  would  be  able  to  sell  their 
stock  at  an  advanced  price,  cannot  pay  their  notes, 
because  they  can  find  no  purchasers  with  actual  capi- 
tal who  are  willing  to  take  their  bad  bargains  off 
their  hands.  At  this  winding  up  of  the  catastrophe, 
it  is  discovered  that  during  the  whole  of  this  operation, 
consumptionhdcdi  been  increasing  faster  than  produc- 
tion— that  the  community  is  poorer  in  the  end  than 
when  it  began — that  instead  of  food  and  clothing  it 
has  railroads  and  canals  adequate  for  the  transporta- 
tion of  double  the  quantity  of  produce  and  merchan- 
dise that  there  is  to  be  transported — and  that  the 
whole  of  the  appearance  of  prosperity  which  was 
exhibited  while  the  currency  was  gradually  increas- 
ing in  quantity,  was  like  that  appearance  of  wealth 
and  affluence  which  the  spendthrift  exhibits  whilst 
running  through  his  estate,  and  like  it,  destined  to  be 
followed  by  a period  of  distress  and  inactivity.^ 

* In  confirmation  of  these  vievvs,  as  well  as  of  others  ex- 
pressed in  this  work,  the  following  remarks  of  the  Bishop  of 
Llandaff  (Copleston),  are  presented.  They  are  contained  in  a 
note  to  a volume  published  in  London,  in  February,  1840,  page 
322,  entitled  ‘‘  Letters  of  the  Earl  of  Dudley,  to  the  Bishop  of 
Llandaff.” 

“This  letter  (dated  17th  .Tune,  1822)  relates  to  a paper  in 
the  Quarterly  Review  on  the  Currency  Question,  which  was 
reprinted  as  a pamphlet  in  1830.  That  paper  was  written  by 
me  after  long  study  of  the  subject,  and  nearly  twenty  years  of 
experience  since  it  was  written  have  confirmed  me  in  the  opi- 
nions there  maintained,  and  have,  I think,  proved  the  correct- 
ness of  its  reasoning:  but  mankind  are  unwilling  to  believe  that 
12^ 


13S 


fA  TREATISE  ON 


But  even  admitting  all  this  to  be  true,  it  may  be 
argued,  that  at  any  rate  banks  of  circulation,  by  libe- 
ral issues  of  their  notes,  make  what  is  called  money 
plenty.  That  they  make  it  plenty  with  those  who 
first  get  their  paper  is  undoubtedly  true,  as  is  evinced 
by  the  speculative  operations  which  have  been  above 
described;  but  as  soon  as  time  has  been  afforded  for 
that  general  rise  in  the  prices  of  property  and  com- 
modities which  is  inseparable  from  increased  issues 
of  paper  after  it  has  become  diffused  throughout  the 
circulation,  the  plenty  disappears.  It  requires,  at  the 

what  skilful  practical  men  find  difficult  and  perplexing,  can  be 
resolved  into  a few  simple  principles,  the  forgetfulness  of  which 
had  caused  all  the  difficulty.  The  temporary  prosperity  also 
which  springs  from  an  extensive  paper  currency  not  only  blinds 
the  eyes  of  the  public  at  large,  but  raises  up  numerous  interests 
among  individuals  whose  profits  depend  upon  a continuance  of 
the  delusion.  The  patient  is  accordingly  flattered  by  nostrums 
which  give  immediate  ease,  but  really  increase  the  malady; 
until  at  length  a crisis  comes,  which  demands  a desperate  re- 
medy. The  alternative  is,  either  a debasement  of  the  coinage 
(which  is  national  bankruptcy,  i.  e.  paying  so  much  in  the 
pound — and  this  has  been  the  usual  remedy  for  insolvency  with 
all  the  governments  of  Europe,)  or  a severe  reaction  on  the 
victims  of  the  delusion,  which  causes  embarrassment  and  stag- 
nation in  trade,  and  ruin  to  thousands  who  lived  and  flourished 
upon  the  ideal  property.  A dreadful  dilemma!  America  is  now 
suffering  under  it,  and  is  probably  doomed  to  undergo  greater 
convulsions  before  the  cure  can  be  effected,  boundless  as  her 
physical  resources  are. 

“ Unfortunately  too,  in  such  a state  of  things,  a large  party  are 
ever  prone  to  run  into  the  opposite  extreme.  Struck  with  dis- 
may at  the  fatal  consequences  of  excess,  they  preach  up,  not 
temperance,  but  total  abstinence.  They  are  for  no  paper  money. 
Thus  it  ever  is — Bum  vitant  siulti  vitia,  in  contraria  currunt. 
They  are  disposed  to  any  thing  except  moderation.  The  plain 
truth  is,  that  convertibility  at  the  will  of  the  holder  is  the  one 
sufficient  security  against  depreciation: — and  if  ever  this  con- 
vertibility is  restrained,  either  by  the  law  (as  it  was  in  England 
for  more  than  20  years)  or  by  public  opinion  equivalent  to  law 
(as  it  has  been  for  many  years  in  America,)  the  system  becomes 
bloated  and  plethoric,  although  exhibiting  many  of  the  outward 
appearances  of  health;  and  a course  of  depletion  must  be  sub- 
mitted to,  with  all  its  mortifications,  in  order  to  save  life.” 


CURRENCY  AND  BANKING. 


139 


new  prices^  the  whole  existing  quantity  of  currency 
to  circulate  the  commodities  which  at  the  old  prices 
were  circulated  by  the  original  quantity,  and  a scarcity 
of  money  is  just  as  likely  to  be  felt  under  a depreci- 
ated currency  as  under  a sound  one,  as  soon  as  the 
expansion  has  ceased  by  the  banks  refusing  to  extend 
their  discounts  any  further,  and  more  especially  when 
they  begin  to  contract  their  loans.^  The  case  is  pre- 
cisely the  same  as  would  exist  if  all  the  specie  in  the 
world  were  suddenly  doubled,  the  effect  of  which 
would  be  that  it  would  require  two  ounces  of  gold  or 
silver  to  purchase  as  much  of  all  other  commodities 
as  could  previously  have  been  purchased  with  one. 
Money  would  be  no  more  plenty  than  before.  Gold 
and  silver  would  be  more  plenty,  but  money  would 
not  be,  for  the  simple  reason,  that  the  prices  of  pro- 
perty and  commodities  would  be  expressed  by  double 
the  number  of  coins;  and  any  one  can  perceive  that 
the  disappearance  of  any  portion  of  the  augmented 
quantity  of  specie  would  occasion  a scarcity  of  money, 
even  though  it  were  true  that  the  quantity  still  left  in 
circulation  should  be  fifty  per  cent,  more  than  the 
quantity  which  existed  before  the  doubling  took 
place.t  This  would  continue  until  the  excess  should 
be  carried  off  by  manufacturers  or  exportation,  when 
prices  would  fall  to  their  old  rates. 

In  reference  to  a general  suspension  of  specie 
payments,  a very  singular  phenomenon  sometimes 

* The  truth  of  this  proposition  was  most  remarkably  illus- 
trated in  this  country  for  six  months  prior  to  the  stoppage  of 
specie  payments  in  May,  1837.  Although  the  amount  of  the  cur- 
rency was  greater  than  it  had  ever  been  before  in  the  United 
States,  yet  the  scarcity  of  money  was  so  great,  than  in  all  the 
commercial  cities  of  the  north  it  would  readily  command  from 
one  to  three  per  cent,  a month. 

f In  stating  the  effect  of  a doubling  of  the  curreney,  I do  not 
intend  positively  to  declare  that  the  prices  of  property  and  com- 
modities would  be  precisely  doubled.  The  proportion  might 
be  different,  but  the  one  I have  assumed  is  the  plainest  for  illus- 
tration. 


140  A TREATISE  ON 

presents  itself,  which  is  worth  being  noticed  in 
this  place.  It  will  appear  to  the  reader  at  first  sight 
as  quite  incredible,  and  yet  it  is  demonstrably  true. 
It  is,  that  a mixed  currency,  whilst  the  paper  portion 
of  it  is  nominally,  and  to  a certain  extent  really  con- 
vertible, may  be  immediately  before  a general  stop- 
page of  specie  payments  absolutely  more  depreciated 
than  it  is  immediately  after  the  stoppage,  when  the 
paper  is  not  convertible  at  all.  The  reason  is  this — 
before  the  stoppage  the  currency  is  composed  of  two 
elements,  coin  and  paper;  after  the  stoppage,  it  is 
composed  of  nothing  but  paper,  and  consequently  the 
aggregate  mass  of  the  whole  is  diminished  to  the  whole 
extent  of  the  specie  thus  withdrawn  from  circulation; 
and  as  depreciation  in  such  case  is  the  result  of  quan- 
tity, its  degree  must  diminish  with  every  reduc- 
tion of  the  mass  whether  the  reduction  be  of  the  me- 
tallic or  the  paper  portion.  This  is  the  reason  why 
after  a stoppage  of  specie  payments,  prices  do  not 
always  rise  and  sometimes  even  fall,  which  gives  co- 
lor to  the  idea  entertained  by  many,  that  the  differ- 
ence between  specie  and  paper  is  occasioned  by  an 
enhancement  in  the  value  of  the  former,  and  not  by 
the  depreciation  of  the  latter,  and  hence  we  see  under 
an  inconvertible  paper  currency,  specie  quoted  at  a 
premium. 


CHAPTER  II. 

OF  FLUCTUATIONS  IN  THE  MARKET  PRICE  OF  SPECIE 
AND  OF  BILLS  OF  EXCHANGE  UNDER  AN  INCON- 
VERTIBLE PAPER  CURRENCY. 

As  soon  as  a general  stoppage  of  specie  payments 
by  the  banks  has  taken  place,  it  is  evident  that  the 


CURRENCY  AND  BANKING. 


141 


only  conceivable  check  to  over-issues  has  ceased  to 
exist,  and  that  the  public  has  no  means  whatever  of 
protecting  itself  against  a still  greater  depreciation  of 
the  currency.  The  issues  of  each  bank  not  being  re- 
gulated as  before  by  a common  standard,  and  having 
in  fact  no  standard  of  any  kind  to  be  referred  to,  the 
inevitable  consequence  is,  that  their  quantity  and  va- 
lue fluctuate  according  to  the  urgent  wants  of  bor- 
rowers, or  to  the  ignorance  or  knavery  of  the  issuers. 
Were  it  not  for  the  system  adopted  in  the  large  com- 
mercial towns  and  cities,  of  the  banks  agreeing 
amongst  themselves  to  pay  interest  on  balances,  there 
would  be  in  large  cities  as  many  currencies  as  banks, 
and  of  as  many  different  degrees  of  depreciation;  but 
the  practice  above  alluded  to,  establishes  a uniforiTi 
currency  at  each  place,  without,  however,  having 
any  positive  reference  to  the  currency  of  any  other 
place.^ 

This  diversity  of  value  in  the  currencies  of  different 
places,  soon  shows  itself  in  the  market  prices  of  com- 
modities. At  that  point  where  the  currency  is  most 
in  excess,  the  prices  of  every  species  of  property, 
such  as  gold  and  silver,  merchandise,  stocks,  foreign 
and  domestic  bills  of  exchange,  produce,  and  real 
property,  will  be  highest;  and  at  that  point  where 
the  currency  has  been  least  in  excess  the  prices  of 
those  things  will  be  lowest  At  all  important  points 
the  scale  of  excess  will  be  quickly  shown  by  the 
market  price  of  specie,  and  the  rate  of  exchange  on 
foreign  countries,  and  as  a general  rule,  this  may  be 
considered  to  be  conclusive  as  to  the  degree  of  depre- 
ciation. 

Of  this  general  principle,  however,  there  are  modi- 
fications. In  the  chapter  on  Exchange,  in  Book 

* During  the  suspension  of  1837,  the  banks  of  Philadelphia 
paid  interest  to  each  other  at  the  rate  of  4 per  cent.  Soon  after 
the  suspension  of  October  1839,  they  fixed  the  rate  at  5 per 
cent.  The  true  policy  in  both  cases  would  have  been  to  have 
adopted  6 per  cent,  the  rate  they  charge  other  borrowers. 


142 


A TREATISE  ON 


First,  it  was  shown  that  the  rate  of  exchange  between 
two  .countries  or  places  may  vary  according  as  the 
balance  of  trade  may  be  one  way  or  the  other,  to  an 
extent  equal  to  the  expenses  of  transmitting  the  pre- 
cious metals  from  one  country  or  place  to  the  other. 
The  influence  which  belongs  to  the  balance  of  trade, 
is  not  destroyed  by  a suspension  of  specie  payments: 
and,  consequently,  its  operation  may  sometimes  be 
displayed  in  such  a way  as  to  augment  or  to  diminish 
the  apparent  difference  in  the  degree  of  depreciation 
between  two  places.  Thus,  suppose  under  a suspen- 
sion of  specie  payments,  the  currency  of  Philadelpnia 
to  be  depreciated  five  per  cent.,  and  that  of  New  Or- 
leans seven  per  cent , at  a period  when  there  was  no 
balance  of  trade  due  one  way  or  the  other,  the  differ- 
ence of  depreciation  would  be  of  course  two  per  cent., 
and  nominal  exchange  at  Philadelphia  on  New  Or- 
leans would  be  at  two  per  cent,  discount.  It  is  well 
known,  that  at  the  season  of  the  year  when  the  cotton 
crop  comes  into  the  New  Orleans  market,  say  from 
October  to  May,  there  is  a demand  in  the  northern 
cities  for  bills  on  New  Orleans  to  remit  for  the  pur- 
chase of  cotton.  If  we  suppose  this  demand  to  affect 
the  market  price  of  bills  to  the  extent  of  two  per 
cent. , the  consequence  would  be,  that  bills  at  Phi- 
ladelphia on  New  Orleans  would  rise  at  that  season 
to  nominal  par,  and  there  would  consequently  be  pre- 
sented the  appearance  of  an  equality  in  the  currency; 
whereas,  in  point  of  fact,  there  would  be  still  existing 
the  original  difference  in  the  degree  of  depreciation. 
So,  on  the  other  hand,  were  the  course  of  trade  at  the 
opposite  season  of  the  year  to  augment  the  supply  of 
bills  on  New  Orleans  in  the  Philadelphia  market,  so 
as  to  occasion  a fall  of  two  per  cent,  below  the  rate 
existing  before  the  late  supposed  rise,  the  exchange 
wmiild  be  nominally  four  per  cent,  below  par,  and 
yet  the  real  difference  in  depreciation  would  be  as 
before,  but  two  per  cent.  What  is  here  said  of  the 
trade  between  Philadelphia  and  New  Orleans,  is 


CURRENCY  AND  BANKING. 


143 


equally  applicable  to  that  between  any  other  two 
places;  and  whatever  may  be  the  influence  of  the  ba- 
lance of  trade  upon  the  rate  of  exchange,  that  amount 
should  be  added  to,  or  subtracted  from,  the  market 
rate  of  exchange,  as  the  case  may  be,  in  order  to  arrive 
at  the  difference  in  depreciation. 

It  is  proper,  however,  here  to  remark,  that  under 
an  inconvertible  paper  currency,  the  rise  and  fall  of 
exchange  are  not  limited,  as  under  a metallic  or  mixed 
currency, by  the  expenses  of  transporting  coin,  and  they 
may  consequently  exceed  it,  as  I shall  proceed  to  show. 

Under  an  inconvertible  paper  currency,  although 
its  depreciation  for  a long  period  together  is  best  to 
be  measured  by  what  is  called  the  premium  on  specie 
yet  it  is  clear  that  if  at  any  particular  place  an  extra- 
ordinary demand  for  specie  were  suddenly  to  arise, 
for  domestic  or  foreign  purposes,  the  paper  currency; 
and  the  specie  in  the  market  remaining  the  same  in 
quantity,  specie  would  rise  as  compared  with  paper, 
and  thus  the  currency  would  appear  to  be  depreciated 
more  than  it  was  at  the  period  before  the  rise.  And 
so  on  the  other  hand,  if  a large  importation  of  specie 
were  suddenly  to  take  place,  the  paper  currency  and 
the  demand  for  specie  remaining  the  same,  a fall  would 
take  place  in  specie,  and  thus  the  currency  would  ap- 
pear to  be  less  depreciated  than  before  the  fall.  A 
knowledge  of  these  facts,  and  the  uncertainty  of  any 
long  continued  fixed  relation  between  specie  and  pa- 
' per  at  any  particular  place,  occasions  merchants  some- 
times to  sell  bills  at  a lower  rate,  and  at  other  times  to 
buy  them  at  a higher  rate,  than  they  would  under 
a metallic  or  mixed  currency.  As  regards  New  York 
and  Philadelphia,  between  which  two  cities  advices 
of  the  state  of  the  markets  may  be  transmitted  in  six 
hours,  the  difference  would  hardly  be  perceptible;  but 
between  New  York  and  Mobile,  or  New  Orleans,  it 
might  be  double  or  treble  under  an  inconvertible  cur- 
rency, to  what  it  would  be  under  a metallic  or  mixed 
currency,  and  this  may  account  in  part  (or  the  remark- 


144 


A TREATISE  ON 


able  and  sudden  fluctuations  which  took  place  at  New- 
York,  in  the  exchanges  on  those  cities,  during  the  sus- 
pension in  the  years  1837  and  1838.* 

In  reference  to  this  subject  of  a high  exchange  under 
an  inconvertible  paper  currency,  a very  general  error 
prevails  of  ascribing  the  whole  of  it  to  the  balance  of 
trade.  From  the  1st  of  July,  1837,  to  the  14th  of 
April,  1838,  exchange  at  New  York  on  Philadelphia 
at  sight  gradually  fell  from  J to  1,  to  4|  to  5 per  cent, 
discount.  Prior  to  the  suspension  of  specie  payments 
in  May  1837,  it  was  never  more  than  a quarter  per 
cent,  above  or  below  par,  for  the  simple  reason,  that 
specie  could  be  sent  from  one  city  to  the  other,  at  an 
expense  less  than  a quarter  per  cent,  and  it  was  there- 
fore very  evident  that  no  balance  of  trade  could  occa- 
sion so  great  an  exchange  as  4f  to  5 per  cent.  But 
notwithstanding  this  self-evident  truth,  the  great  body 
of  superficial  reasoners  ascribed  it  to  that  cause,  and 
they  were  led  so  to  do,  from  being  acquainted  with 
the  fact,  that  the  banks  of  Philadelphia  were  largely 

* Rates  of  exchange  at  New  York  on  New  Orleans  and  Mo- 
bile, payable  in  New  York  currency,  as  also  the  rate  of  premium 
on  half  dollars,  at  the  dates  respectively  mentioned. 


1837.  New  Orleans,  Mobile.  Prem,  on  Half 

Dollars, 


July 

1, 

71 

to 

10  perct.  disc’t. 

Not  quoted  in  the 

10-j 

to 

Hi 

Aug. 

1, 

10 

44 

New  York  Price 

8“ 

44 

Sept. 

3, 

10 

44 

Current  until  1838. 

9 

44 

9i 

Oct. 

7, 

5 

44 

6 

44 

5 

44 

Nov. 

4, 

44 

4 

44 

6 

44 

Dec. 

2, 

3 

44 

3^ 

44 

4| 

44 

5 

1838, 

Jan. 

6, 

2 

44 

3 

44 

5Ato  6 per  ct.  disc’t.  2A 

44 

3 

Feb. 

3, 

3^ 

44 

4 

44 

7i“  8J- 

44 

4 

44 

H 

M’ch 

.3, 

4 

44 

5 

44 

12^  ‘‘  13^ 

44 

2i 

44 

3 

April 

7, 

6 

44 

7 

44 

17  “20 

44 

1 

44 

li 

21, 

10 

44 

12 

44 

25  “ 30 

44 

44 

1 

(4 

38, 

8 

44 

10 

44 

20  “ 22 

44 

44 

3 

T 

May, 

5, 

8 

44 

10 

44 

20  “ 22 

44 

i 

44 

3 

5" 

44 

12, 

8 

44 

10 

44 

20  “ 22 

44 

1 

£ 

44 

3 

5" 

44 

19, 

8 

44 

10 

44 

12  “ 15 

44 

par. 

CURRENCY  AND  BANKING.  145 

indebted  to  the  banks  of  New  York,  sometimes  even 
to  the  extent  of  a million  and  a half  of  dollars.  Their 
error  consisted  in  mistaking  the  effect  for  the  cause. 
The  rate  of  exchange  which  represented  the  greater 
depreciation  of  the  currency  of  Philadelphia  over  that 
of  New  York,  was  the  cause  of  the  balance  and  not 
the  balance  the  cause  of  the  rate  of  exchange.  The 
superiority  of  the  currency  of  New  York,  being  nearer 
in  value  to  specie  than  that  of  Philadelphia,  was  the 
result  of  a gradual  diminution  of  its  quantity,  which 
was  commenced  in  August,  1837.  This  diminution 
by  making  money  more  scarce  and  consequently  more 
valuable  in  New  York  than  in  Philadelphia,  occa- 
sioned a fall  in  the  former  city  in  the  prices  of  every 
species  of  merchandise  and  stocks  and  bills  of  ex- 
change to  such  an  extent  as  to  make  it  an  object  for 
Philadelphia  merchants  and  speculators  to  go  to  New 
York  to  purchase,  and  at  the  same  time  occasioned 
the  transmission  to  Philadelphia  of  a large  quantity  of 
merchandise  to  be  sold  at  auction.  These  operations 
created  a debt  in  favor  of  New  York  against  Philadeh 
phia;  the  evidences  of  which  came  into  possession  of 
the  New  York  banks  by  the  discount  or  collection 
of  Philadelphia  paper;  and  as  the  New  York  banks 
which  resumed  payment  on  the  23d  of  April,  knew 
that  on  the  resumption  of  specie  payments  in  Phila- 
delphia, which  they  expected  soon  to  follow,  the 
amount  would  be  payable  in  specie;  they  permitted 
it  to  lie  undrawn  for,  although  not  bearing  interest, 
rather  than  to  incur  a loss  by  the  purchase  of  specie 
at  Philadelphia  equal  to  the  extent  of  the  deprecia- 
tion of  the  currency  of  that  city,  considering  it,  in  fact, 
as  nearly  equivalent  to  coin  in  their  own  vaults,  and 
as  a part  of  the  funds  upon  which  they  relied  to 
enable  themselves  to  resume  or  to  sustain  specie  pay- 
ments. No  such  effect  could  have  been  produced  by 
any  balance  existing  against  Philadelphia,  had  her 
currency  been  as  near  the  standard  as  that  of  New 
York,  for  as  an  equal  value  would  have  existed  in 
13 


146 


A TREATISE  ON 


the  money  of  both  places,  and  consequently  an  equal 
scale  of  prices,  there  could  have  been  no  motive  for 
the  transmission  of  merchandise,  stocks,  or  bills  of 
exchange,  from  one  place  to  the  other  for  sale,  except 
that  which  ordinarily  exists,  and  which  at  all  times, 
under  a sound  currency,  leads  to  a mutual  and  equi- 
valent interchange  of  commodities  and  property.  * 

The  remarks  which  have  here  been  uiade  in  refer- 
ence to  the  domestic  exchanges  will  apply  with  equal 
force  to  the  foreign  exchanges  of  the  country.  Foreign 
bills  will  show  in  their  market  price  the  relative  degrees 
of  the  depreciation  of  the  currency  of  the  places  at 
which  they  are  sold.  If  there  be  a favorable  or  un- 
favorable balance  of  trade,  capable,  under  a sound 
mixed  or  metallic  currency,  of  depressing  or  raising 
the  price  of  bills  one  or  two  per  cent,  below  or  above 
par,  that  amount  will  subtract  from,  or  add  to  the 
rate  of  depreciation,  and  consequently  make  it  appear 
less  or  greater  than  the  true  rate.  In  like  manner,  also 
may  the  market  rate  of  exchange  fluctuate  to  a great- 
er extent  than  under  a mixed  or  metallic  currency,  ow- 
ing to  the  uncertain  continuance  of  the  same  degree  of 
depreciation  at  the  place  where  bills  are  drawn.  Thus 
if  the  currency  of  New  York  under  a suspension  for 
example,  were  five  per  cent,  depreciated'belo  w the  gold 
standard  of  London,  whilst  the  course  of  trade  was  such 
that,  under  a convertible  currency,  the  exchange 
would  be  at  par,  the  paper  money  rate  of  exchange 
on  London  would  be  five  per  cent  premium.  Now, 
if  there  were  all  at  once  to  arise  a strong  probability 
that  within  a short  period  the  banks  of  New  York 
would  resume  specie  payments,  it  might  be  more  ad- 
vantageous for  the  holder  of  a bill  on  London  to  sell 
even,  as  low  as  the  paper  money  par,  which  would  be 

* Upon  the  resumption  of  payments  by  the  Philadelphia  banks, 
on  13th  August,  1838,  the  exchange  at  New  York  on  Philadel- 
phia fell  to  7 to  I , and  from  that  period  up  to  the  suspension 
of  October,  1839,  it  was  at  no  time  below  | and  was  frequently 
at  par. 


CURRENCY  AND  BANKING. 


147 


in  fact,  five  per  cent,  below  the  true  par,  than  to  import 
gold  for  the  amount  of  his  bill;  for  the  simple  reason, 
that  by  the  time  his  gold  could  get  there,  the  banks 
might  have  resumed  payment,  in  which  event  he  could 
obtain  no  premium  for  it,  and  would  consequently  be 
the  loser  of  all  the  expenses  of  importation.  It  was 
the  gradual  diminution  of  the  currency  of  New  York, 
attended  by  a great  pressure,  which  by  degrees  re- 
duced the  premium  on  specie,  and  gave  assurance  of 
an  early  resumption  of  specie  payments,  Avhich  in  the 
month  of  February,  1838,  reduced  the  exchange  on 
England  five  or  six  per.cent  below  the  true  par,  which 
could  not  have  happened  in  ordinary  times,  under  a 
metallic  or  mixed  currency.^ 

So  also  on  the  other  hand,  if  the  currency  of  New 
York  were  five  per  cent,  depreciated  below  the  gold 
standard  of  London,  and  the  paper  money  rate  of  ex- 
change, as  in  the  former  case,  were  at  five  per  cent, 
premium,  that  is,  at  the  true  par,  it  might,  if  the  cur- 
rency were  expanding,  be  more  advantageous  for  the 
holder  of  a bill  on  London  if  he  had  debts  to  pay, 
which  could  be  discharged  with  paper  money,  to  im- 
port gold  than  to  sell  his  bill  at  five  per  cent,  above 
that  true  par,  for  the  simple  reason  that  the  price  of 
specie  might  rise  to  such  a premium  as  to  afford  him 
an  additional  profit  over  and  above  the  expenses  of 
importation,  which  could  not  have  happened  under  a 
mixed  or  metallic  currency. 

♦ On  the  lOtb  of  February,  1838,  nominal  exchange  on  Lon- 
don at  New  York  was  quoted  at  7 to  8 per  cent,  premium,  being 
an  average  of  7J.  The  true  par  as  has  been  shown  is  near9^ 
per  cent,  advance  on  the  old  computed  par.  The  price  of  specie 
on  the  same  day,  payable  in  New  York  currency,  was  3^  per 
cent,  premium,  and  consequently  exchange  on  London,  if  paid 
for  in  coin,  was  4 per  cent,  nominal  premium,  which  was  in  re- 
ality 51  per  cent,  below  the  true  par. 


14S 


A TREATISE  ON 


CHAPTER  III. 

OF  THE  TRUE  CHARACTER  AND  EFFECTS  OF  A GENE- 
RAL SUSPENSION  OF  PAYMENTS  BY  THE  BANKS, 

AND  THEIR  OBLIGATIONS  UNDER  IT. 

When  an  individual  bank  fails  by  mismanagement 
or  over-trading,  so  that  it  cannot  pay  its  notes  or 
deposites,  we  say  that  the  bank  has  broke;  but  when 
eight  hundred  or  a thousand  banks  do  the  same  thing, 
we  call  it  suspending  specie  payments,  as  if  there 
were  any  thing  but  specie  of  which  a stoppage  of 
payment  by  a bank  or  any  individual  could  be  predi- 
cated. For  all  the  banks,  therefore,  of  a country,  to 
stop  together,  call  it  what  we  may,  it  is  nothing  more 
nor  less  than  a general  bankruptcy,  under  which  the 
banks  find  themselves  in  the  precise  condition  of 
individual  traders,  who,  when  they  meet  with  tempo- 
rary embarrasments,  are  obliged  to  call  upon  their 
creditors  for  an  extension  of  time.  Between  the 
mode,  however,  in  which  the  two  parties  make  the 
appeal  to  their  creditors  for  this  extension,  there  is  a 
very  wide  difference.  The  individual  trader  solicits 
it  as  a favor  which  his  creditor  may  grant  or  with- 
hold at  his  pleasure;  and  if,  in  his  opinion,  his  estate 
is  ample  for  the  ultimate  payment  of  the  whole  of  his 
debts,  he  stipulates  to  pay  interest  for  the  time  he  is 
to  be  indulged,  and  during  which  his  creditor  is  to 
be  kept  out  of  his  property. 

On  the  other  hand,  banks,  when  they  default  in 
their  payments,  not  only  never  ask  the  indulgence  of 
their  creditors  for  any  specified  extension  of  time,  but 
they  do  not  even  think  themselves  under  obligations 
to  pay  interest  to  their  creditors  for  the  funds  they 
forcibly  detain  from  them;"^'  nay,  they  very  frequently. 


* Since  the  first  edition  of  this  work  was  printed,  one  excep- 


CURRENCY  AND  BANKING. 


149 


in  the  midst  of  their  insolvency,  declare  dividends  of 
the  very  profits  which  actually  belong  to  their  credi- 
tors, who,  and  not  the  stockholders,  are  entitled  to 
interest  for  their  withholden  funds.  Excepting 
where  legislative  enactments  have  forbidden  divi- 
dends under  a suspension  of  payments,  instances  are 
extremely  rare  wherein  a sense  of  justice  on  the  part 
of  the  directors  of  banks  has  led  them  to  refrain  from 
such  manifest  injustice,  and  the  consequence  has 
been,  that  a direct  inducement  is  thereby  created 
for  taking  no  steps  towards  a resumption  of  payment, 
for  fear  of  diminishing  the  profits  of  lending  other 
people’s  money,  whilst  refusing  to  allow  interest  for 
its  use.* 

From  these  remarks,  it  may  be  inferred,  that  I con- 
sider a resumption  of  payment  by  solvent  banks,  after 
they  have  stopped,  as  not  of  so  difficult  accomplish- 
ment as  many  persons  imagine.  The  fact  is  even  so, 
and  the  chief  delay  that  takes  place  with  most  of 
them  is  the  simple  result  of  a calculation  of  profit  and 
loss.  It  is  not  profitable  to  resume  expeditiously. 
This  is  with  such  banks  the  whole  pith  of  the  ques- 
tion, and  that  I may  not  be  considered  as  asserting 
a proposition  unsusceptible  of  proof,  I will  establish 
it  thus: — 

tion  to  the  generality  of  this  remark  has  been  presented  in  the 
case  of  the  Branch  Bank  of  Darien  in  Georgia,  located  at  Mil- 
ledgeville,  which  stopped  payment  a second  time  on  the  27th  of 
March,  1839.  The  directors,  in  announcing  the  fact  to  the  pub- 
lic, gave  notice,  that  the  bank  would  pay  an  interest  of  seven 
per  cent,  upon  all  sums  of  one  hundred  dollars  and  over,  de- 
posited in  the  bills  of  said  bank  during  the  suspension. 

* During  the  suspension  of  1837  and  1838,  all  the  banks 
of  Pennsylvania  made  dividends,  although  it  was  prohibited  in 
the  charters  of  most  of  them.  After  the  suspension,  which 
took  place  in  Philadelphia,  in  October,  1839,  most  of  the  banks 
of  that  city  resolved  not  to  declare  dividends,  until  the  pleasure 
of  the  Legislature  could  be  known.  By  an  act  authorising  the 
continuance  of  the  suspension  until  the  15th  of  January,  1841, 
permission  was  granted  to  make  dividends,  contrary  to  every 
principle  of  justice  and  equity. 

13^ 


150 


A TREATISE  ON 


A bank  with  a capital  of  ten  millions  of  dollars,  has 
loans  out  at  the  time  of  the  suspension  to  the  amount, 
we  will  suppose,  of  fifteen  millions.  Of  this  fifteen 
millions,  we  will  suppose  three  to  constitute  that  ex- 
cess, which,  in  conjunction  with  the  excesses  issued  by 
the  other  banks,  has  caused  the  depreciation  of  the 
currency,  terminating  in  the  stoppage,  and  conse- 
quently, that  that  is  the  amount  of  immediate  liabili- 
ties, which,  if  they  were  put  out  of  the  way,  would 
restore  the  bank  to  a sound  condition,  seeing  that 
under  the  securest  conduct,  it  can  always  maintain 
without  danger  of  reaction,  loans  amounting  to  twelve 
millions. 

The  first  and  most  natural  mode  that  presents  itself 
to  accomplish  this  end  is  to  call  upon  the  debtors  of 
the  bank  for  the  payment  of  three  millions  of  dollars. 
One  could  hardly  suppose,  that  any  bank  having 
loans  out  to  the  amount  of  fifteen  millions,  could  not 
within  a reasonably  short  period  collect  twenty  per 
cent,  of  the  amount,  seeing  the  fact  to  be,  that  paper 
money  must  needs  be  plenty,  as  is  proved  from  the 
very  necessity  of  diminishing  its  amount  in  conse- 
quence of  its  being  in  excess;  and  more  especially 
would  this  be  true,  if  any  large  part  of  the  loans  made 
by  the  bank  was  upon  a pledge  of  stocks  of  any  kind; 
for  it  must  be  manifest  that  all  such  stocks  are  saleable 
for  cash  at  the  market  price;  and  if  a loss  should  occur 
upon  a forced  or  unexpected  sale,  the  owner  would 
have  no  right  to  complain,  because  such  was  the  con- 
tingency under  which  he  pledged  them. 

But  let  us  suppose,  what  is  most  commonly  urged 
upon  such  occasions,  that  the  debtors  of  the  bank  can 
not  pay  at  all  without  a long  indulgence  as  to  time, 
and  that  if  their  stocks  are  sold  at  forced  prices,  the 
bank  will  lose  a large  part  of  the  security  she  holds 
for  the  debt.  I can  see  no  objection  to  a creditor,  if 
he  finds  it  consistent  with  his  interest,  accommoda- 
ting his  debtor  by  a postponement  of  his  demands. 
It  is  done  every  day,  and  is  just  as  legitimate  when 


CURRENCY  AND  BANKING. 


151 


performed  by  a corporation,  as  when  performed  by 
an  individual.  But  in  either  case,  the  party  who 
grants  the  accommodation,  must  take  care  that  in 
effecting  it,  he  adheres  to  the  rules  of  honesty.  The 
means  by  which  he  effects  his  purpose,  must  be  his 
own,  which  he  has  authority  to  dispose  of.  No  cre- 
ditor would  have  a right  to  indulge  a debtor,  by  with- 
holding money  from  a third  party  without  his  con- 
sent, and  without  paying  him  interest  for  the  use  of  it, 
and  especially  if  he  was  himself  deriving  an  interest 
from  the  indulged  creditor. 

And  now  I would  ask,  if  this  be  true  in  reference 
to  individuals,  upon  what  principle  has  a corporation 
a right,  to  accommodate  its  own  debtors,  for  the  pur- 
pose of  securing  its  debts,  at  the  expense  of  its  credi- 
tors, the  public?  If,  indeed,  in  the  indulgence  shown 
by  banks  to  their  debtors,  there  was  a waiving  of  the 
interest,  the  public  might  have  some  corresponding 
return  for  their  own  loss,  inasmuch  as  some  bank  cre- 
ditors might  also  be  bank  debtors.  But  we  never  hear 
of  any  such  generosity.  Every  dollar  is  demanded 
for  every  day’s  indulgence,  where  the  parties  are  sol- 
vent; and  when  those  who  feel  themselves  aggrieved 
complain,  that  by  the  depreciation  of  the  currency 
they  have  to  pay  an  increased  price  for  all  they  pur- 
chase, they  are  considered  as  quite  unreasonable  for 
not  being  willing  to  submit  to  some  sacrifice  for  the 
public  good,  which  means  in  this  case  the  good  of  the 
stockholders  of  the  banks. 

Now  cannot  any  one  perceive,  that,  if  the  bank  in 
question  had  acted  with  a strict  regard  to  justice  when 
it  resolved  to  accommodate  its  debtors,  it  would  at 
once  have  borrowed  three  millions  of  dollars,  or  such 
part  of  that  sum  as  it  could  not  have  collected  from 
its  debtors,  for  such  length  of  time  as  would  have  en- 
abled it  to  afford  the  requisite  relief?  Cannot  any 
one  perceive,  that  such  a course  would  have  restored 
the  currency,  without  depriving  any  one  of  his  just 
rights?  The  matter  is  too  plain  to  admit  of  dispute. 


152 


A TREATISE  ON 


Why  then  is  it  not  resorted  to  in  such  emergencies? 
Because,  as  I have  said,  it  is  not  profitable. 

But  it  may  be  said,  that  some  banks  could  not  bor- 
row. This  is  highly  probable.  But  it  is  hardly  pos- 
sible that  any  bank  should  be  in  such  bad  credit  that 
it  could  not  borrow  its  own  notes  or  the  claims  of  its 
depositors,  upon  some  terms  satisfactory  to  the  hold- 
ers, which  is  all  that  it  wants  to  absorb  the  excess  of 
its  issues.  If  there  should  be  any  such  banks,  the 
sooner  they  are  found  out  the  better,  and  the  sooner 
their  notes  are  rejected  from  the  circulation,  the  sooner 
would  the  currency  be  restored. 

But  this  is  not  all.  An  inconvertible  currency  trans- 
fers from  the  pockets  of  creditors  to  those  of  their 
debtors  without  an  equivalent,  a sum  equal  to  the 
extent  of  the  depreciation.  Thus  in  New  York  and 
Philadelphia,  all  notes  for  merchandise  given  before 
the  stoppage  of  the  banks  in  May  1837,  and  which 
fell  due  before  the  resumption,  were  paid  in  paper 
from  ten  to  one  per  cent,  depreciated  according  to  the 
date,  and  in  those  cases  where  the  receivers  of  this 
paper  were  indebted  to  foreign  merchants,  to  whom 
they  were  obliged  to  make  remittances,  this  loss  was 
wholly  uncompensated. It  was,  in  fact,  an  abstrac- 
tion of  this  amount  from  their  pockets,  precisely  of 
the  same  nature  as  would  have  resulted  from  the  de- 
basement of  the  coin  to  the  same  extent  by  the  go- 
vernment. The  same  remark  may  with  the  same 
truth  be  made  in  reference  to  the  payment  of  all  other 
debts,  the  creditor  being  deprived  of  a certain  portion 
of  the  gold  or  silver,  or  its  equivalent,  which  by  his 
contract  he  was  entitled  to  receive.  And  how  stands 
the  case  with  reference  to  that  large  portion  of  the 
community  who  live  upon  fixed  incomes,  such  as  the 
interest  upon  mortgages,  state  loans,  ground  rents, 

% ^ 

* One  merchant  informed  me,  that  he  had  lost  upon  his  re- 
mittances during  the  suspension  of  1837,  ^20,000,  in  the  ex- 
change. Others  lost  much  more. 


CURRENCY  AND  BANKING. 


153 


salaries,  and  wages,  which  they  have  not  the  power 
to  increase  so  as  to  meet  the  increased  prices  of  food, 
clothing,  fuel,  &c.?  They  are  all  losers  precisely  in  the 
same  way  and  to  the  same  extent  as  the  creditors 
that  have  been  referred  to,  to  the  whole  extent  of  their 
receipts. 

In  refutation  of  these  positions,  it  is  all  idle  to  say, 
that  the  expenses  of  living  are  not  augmented  by  a 
depreciated  currency.  It  is  not  possible  that  it  can  be 
otherwise,  and  although  in  small  transactions  the  fact 
may  not  be  very  observable,  yet  no  sound  thinker 
will  maintain  that  a ten  dollar  bank  note  worth  in  the 
market  nine  silver  dollars,  will  buy  as  much  of  any 
thing  as  ten  silver  dollars,  which  can  be  converted 
when  the  owner  pleases  into  eleven  dollars  of  bank 
notes. 

In  like  manner,  it  would  be  equally  idle  to  say, 
that  the  great  mass  of  persons  gain  as  much  as  they 
lose  by  the  depreciation  of  the  currency.  This  is 
only  true  of  those  who  owe  just  as  much  as  they  are 
indebted  to  others  at  the  time  of  the  stoppage  of  the 
banks,  and  of  those  whose  business  is  of  such  a 
nature,  as  enables  them  to  charge  for  what  they  have 
to  sell,  an  additional  price  equal  to  the  depreciation. 
All  others  who  cannot  do  this,  are  obliged  to  pay 
more  for  all  the  articles  required  for  their  subsistence, 
without  any  corresponding  return,  and  have  there- 
fore just  ground  for  complaining  of  a system  which 
operates  so  greatly  to  their  prejudice. 

But  there  is  one  class  of  persons  upon  whom  the 
depreciation  of  a currency  falls,  who  have  a para- 
mount right  to  complain.  I mean  foreigners  to  whom 
debts  are  due  by  individuals,  and  who  cannot,  by  any 
means,  direct  or  indirect,  remunerate  themselves  for 
the  loss.  Every  one  such  whose  debts  are  remitted 
in  bills  of  exchange  purchased  with  the  depreciated 
currency,  loses  precisely  the  amount  of  the  deprecia- 
tion. And  what  shall  be  said  of  that  large  class  of 
creditors,  who  constitute  the  foreign  holders  of  the 


154 


A TREATISE  ON 


public  debt  of  one  of  oiir  states,  and  who  were  com- 
pelled to  receive,  during  the  late  suspension,  the 
amount  of  their  interest,  not  in  coin  or  its  equivalent, 
for  the  payment  of  which  the  faith  of  the  state  was 
pledged,  but  in  depreciated  paper?  I blush  for  the 
credit  of  my  native  state,  Pennsylvania,  when  I recol- 
lect that  the  governments  of  New  York,  Ohio,  In- 
diana, and  probably  some  other  states,  considered 
themselves  bound  in  honor  to  pay  the  foreign  inte- 
rest on  their  debts  in  the  equivalent  of  specie,  whilst 
she,  for  a less  sum  than  a hundred  thousand  dollars, 
was  willing  to  be  stigmatised  all  over  Europe,  as 
guilty  of  a breach  of  public  faith,  the  notoriety  of 
which  cannot  fail  to  influence  the  future  value  of  her 
stock  abroad,  unless  she  makes  the  reparation  so  mani- 
festly and  so  justly  due.* 


CHAPTER  IV. 

OF  THE  CRIMINALITY  OF  BANKS  IN  AUGMENTING 

THEIR  ISSUES  AFTER  A SUSPENSION  OF  PAYMENTS. 

But  however  culpable  banks  render  themselves  by 
not,  immediately,  after  a general  suspension,  adopting 
measures  for  a resumption,  accompanied  by  the  pay- 
ment of  interest  to  all  who  are  forcibly  withheld  from 
the  possession  of  their  property,  yet  they  are  far  less 
culpable  than  those,  which,  after  the  removal  of  all 
checks  upon  issues,  take  advantage  of  the  ignorance 

* On  the  10th  of  June,  1839,  after  the  publication  of  the  first 
edition  of  this  work,  the  Legislature  of  Pennsylvania  made  pro- 
vision for  paying  to  the  holders  of  her  loans,  the  loss  incurred 
by  them  on  the  depreciated  paper  given  in  payment  of  the  inte- 
rest falling  due  during  the  suspension  of  1837,  but  the  amount 
has  not  yet  been  paid.  See  Appendix,  I. 


CURRENCY  AND  BANKING. 


155 


or  forbearance  of  the  public,  and  expand  their  circula- 
tion, so  as  greatly  to  depreciate  the  currency  below 
the  rate  at  which  the  suspension  found  it.  The  effect 
of  such  a course  is  to  re-produce,  but  with  far  more 
generality,  the  scene  described  in  the  first  chapter  of 
this  book,  under  the  head  of  the  career  usually  run  by 
banks  before  a suspension.  Speculation,  over  trading, 
and  extravagance,  are  all  multiplied,  as  every  new  ad- 
dition of  the  currency  appears  to  augment  what  peo- 
ple suppose  to  be  the  mass  of  wealth.  More  especially 
is  such  a state  of  the  currency  apt  to  inflict  misery 
and  ruin  upon  the  landholders  throughout  the  coun- 
try, who,  by  a rise  in  the  paper  money  price  of  land, 
which  they  fancy  to  be  a real  rise  in  value,  are  in- 
duced to  make  purchases,  upon  credit,  by  giving 
mortgages  payable  at  a future  day  in  coin,  for  an 
amount  perhaps  double  the  metallic  value  of  the  pro- 
perty. 

The  only  examples  of  the  state  of  things  here  de- 
scribed, that  need  be  referred  to,  are  the  following: — 

1.  The  suspension  of  cash  payments  by  the  Bank 
of  England  and  all  the  county  banks,  which  took 
place  in  1797,  and  continued  until  1821,  in  the  course 
of  which  time  the  depreciation  at  one  period  was  as 
great  as  twenty-five  per  cent. 

During  the  gradual  process  of  this  depreciation,  the 
prices  of  commodities  gradually  rose,  by  which  means 
the  actual  incomes  of  persons  living  upon  the  funds 
or  annuities,  was  proportionately  decreased,  whilst 
lands  and  rents  also  rose,  so  that  long  leases  were 
renewed  at  higher  rates  than  before.  The  revulsion 
resulting  from  this  state  of  things,  was  disastrous  in 
the  extreme.  The  gradual  contraction  of  the  cur- 
rency produced  a fall  of  prices,  a prostration  of  trade, 
and  a general  distress  throughout  the  manufacturing 
districts.  The  new  rents  contracted  for  in  a currency 
worth  fifteen  shillings  in  the  pound,  could  not  be  paid 
in  coin,  after  the  resumption;  and  thus  the  agricul- 
tural interest  was  embarrassed,  whilst  the  augmen- 


156 


A TREATISE  ON 


tation  of  the  national  debt  raised  by  subscription  in 
depreciated  paper,  and  of  the  national  expenses  oc- 
casioned by  the  increased  prices  of  naval  and  military 
supplies  immensely  added  to  the  burthens  of  the 
people. 

2.  The  second  example  referred  to,  is  the  siipension 
of  payments  by  all  the  banks  of  the  United  States, 
south  of  New  England,  in  August,  1814,  and  which 
continued  until  February,  1817.  Those  who  can 
remember  the  events  of  that  period  will  not  have 
forgotten  the  abuse  of  the  public  forbearance  exhi- 
bited by  them  upon  that  occasion.  The  sanction  of 
the  community  was  extended  to  them  during  the  con- 
tinuance of  the  war  then  existing  with  Great  Britain, 
on  account  of  the  belief  that  their  condition  was  forced 
upon  them  by  the  peculiar  circumstances  of  the  coun- 
try; but  no  sooner  had  peace  returned  in  the  early 
part  of  1815,  than  all  their  pledges  were  violated,  and 
instead  of  manifesting  by  their  actions  a desire  to 
contract  their  loans  so  as  to  place  themselves  in  a 
situation  for  complying  with  their  obligations,  they 
actually  expanded  the  currency  by  extraordinary  is- 
sues, whilst  there  was  no  existing  check  upon  them, 
until  its  depreciation  became  so  great  that  speculation 
and  overtrading  in  all  their  disastrous  forms,  involved 
the  country  in  a scene  of  wretchedness,  from  which 
it  did  not  recover  in  ten  years.^ 

3.  The  third  example  referred  to  is  that  which  took 
place  in  some  parts  of  the  United  States  after  the 
general  suspension  of  payments  in  May,  1837.  In 
the  state  of  Mississippi  was  this  criminal  conduct  dis- 
played to  the  greatest  extent.  Not  only  were  new 
banks  established,  but  those  which  previously  existed 
were  guilty  of  the  most  unjustifiable  issues  of  paper, 

* For  a particular  history  of  the  money  crisis  of  this  period,  see 
a report  made  to  the  Senate  of  Pennsylvania  on  the  29th  of 
January,  1820,  by  the  author  of  this  treatise,  Appendix,  H. 
See  also  Gouge  on  Banking. 


CURRENCY  AND  BANKING. 


157 


upon  the  plea,  that  by  making  advances  to  the  plan- 
ters upon  their  crop  of  cotton,  they  would  be  enabled 
to  hold  it  for  a higher  price,  and  not  be  forced  to  sub- 
mit, as  always  before,  to  the  fair  and  natural  compe- 
tion  of  the  market.  Under  the  delusive  expectation 
that  such  engagements  might  be  advantageous  to 
them,  a large  number  of  planters  were  most  shame- 
lessly plundered.  Every  emission  of  notes  made  by 
these  accommodating  banks  depreciated  the  currency 
more  and  more,  so  that  the  planter  who  was  to  re- 
ceive S60  in  paper  per  bale  advance,  found  when  it 
came  into  his  possession  that  his  $60  in  paper  would 
not  buy  more  provisions  and  clothing  for  his  slaves, 
and  other  supplies  for  his  plantation  and  family,  than 
®40  good  money  would  have  bought.  In  the  mean 
time  the  banks  shipped  the  cotton,  converted  it  into 
available  funds  at  New  Orleans,  Pliiladelphia,  or  New 
York,  and  with  these  very  funds,  perhaps,  bought  up, 
at  a great  depreciation  in  the  market,  the  very  notes 
with  which  they  accommodated  the  planter,  who,  on 
the  restoration  of  specie  payments  in  Mississippi,  is 
expected  to  pay  up  the  balance  of  his  account  in  hard 
money  or  its  equivalent.* 

* How  far  he  will  be  able  to  comply  with  his  engagements 
may  be  inferred  from  the  following  paragraphs  from  newspa- 
pers. 

From  the  National  Intelligencer  of  \th  JlprU.,  1839.  “The 
Vicksburg  Whig  of  the  13th  ult.  gives  quite  a gloomy  picture 
of  the  monetary  affairs  of  Mississippi."  It  represents  the  darkest 
days  of  1837,  as  presenting  but  a faint  picture  of  what  is  now 
exhibiting  in  every  town  and  country  of  the  state.  Goods  have 
been  sold  at  less  than  half  the  original  cost,  and  lands  and  ne- 
groes have  gone  off  under  the  sheriff’s  hammer  for  one  fifth  of 
their  value.” 

From  the  New  Orleans  True  American  of  about  \6th  Aprils 
1839. — “The  state  of  affairs  in  Mississippi  is  anything  but 
flattering.  The  greatest  distress  seems  to  prevail.  The  news- 
papers teem  to  overflowing  with  legal  advertisements.  We 
hear  daily  of  the  sacrifice  of  property,  and  credit  is  a thing 
which  is  sometimes  talked  of  but  hardly  expected,  much  less 
known. 

14 


158 


A TREATISE  ON 


CHAPTER  V. 

OF  THE  COST  TO  A COMMUNITY,  PECUNIARY  AND 
MORAL,  OF  BANKS  OF  CIRCULATION,  COMPARED 
WITH  THE  BENEFITS  DERIVED  FROM  THEM. 

Having  shown  in  former  chapters  that  banks  of 
circulation  neither  create  capital  nor  make  money  per- 
manently plenty,  nor  promote  national  wealth  by  the 
facilities  they  afford  to  the  circulation  of  the  existing 
capital,  which  are  the  three  particulars  upon  which 
their  importance  to  a country  is  generally  considered 
to  rest,  and  that  in  reality,  their  only  power  to  do 
good  is  limited  to  the  simple  operation  of  substituting 
their  paper  for  a portion  of  the  coin  which  would  be 
required  for  the  currency  if  there  were  no  banks,  by 
which  a country  gains  a sum  equal  to  the  profit  earned 
upon  the  amount  so  substituted  employed  in  com- 
merce, and  the  advantage  arising  from  the  employ- 
ment of  a medium,  for  large  payments  and  for  inland 

Some  estimate  may  be  placed  on  the  situation  of  things  in 
Mississippi  from  the  fact  that  on  a single  offering  day,  upwards 
of  5000  notes  were  tendered  the  Union  Bank  for  discount, 
amounting  in  the  aggregate  to  about  gl 5,000,000!  Great  dis- 
tress must  prevail,  and  the  worst  may  not  yet  have  come.  It  is 
a bitter  thing  to  wake  up  from  the  dream  of  exhaustless  wealth 
to  the  reality  of  embarrassment  and  a future  poverty  and  labor. 
Such  we  fear  has  been  the  fate  of  many,  and  we  trust  that  their 
backs  may  be  strengthened  to  the  burthen.” 

From  the  Raymond  (ilfm,)  Times  of  — Sept.  1839. — “ Good 
plantations  with  every  improvement  and  convenience,  such  as 
houses,  gins,  and  negro  cabins  have  been  often  sold  at  from  ^2 
to  g5  per  acre.” 

From  the  Nashville  Whig  of — Aprils  1840. — “ We  were  inform- 
ed last  evening,  by  a gentleman  just  from  Vicksburgh,  who  had 
been  over  a considerable  portion  of  the  country  in  the  vicinity 
of  that  city,  that  five  out  of  every  six  of  the  cotton  farms  were 
now  vacated  and  lying  a barren  waste — farms,  too,  which  but  a 
year  or  two  ago,  were  worth  from  g 10,000  to  ^50,000. 


CURRENCY  AND  BANKING. 


159 


transmission  more  convenient  than  coin,  I come  now 
to  inquire  what  is  the  probable  amount  of  this  gain  in 
the  United  States,  and  whether  the  expenses  incurred 
in  the  support  of,  and  the  evils  constantly  liable  to  re- 
sult from,  the  abuse  of  the  circulating  banking  system, 
do  or  do  not  counterbalance  this  gain.  In  the  result 
of  this  inquiry,  every  individual  in  the  community  is 
interested;  and  as  I have  no  motive  in  this  investiga- 
tion but  the  establishment  of  truth,  I beg  the  reader  to 
watch  my  arguments  and  positions  closely,  in  order 
that  he  may  detect  any  untenable  or  erroneous  posi- 
tions, should  such  be  advanced. 

It  is  perhaps  no  easy  matter  to  ascertain  with  any 
reasonable  certainty  the  amount  of  currency  required 
for  the  use  of  the  population  of  the  United  States, 
now  supposed  to  amount  to  about  sixteen  millions  of 
souls.  The  only  estimates  hitherto  made,  have  been 
founded  upon  rather  a sort  of  conjecture  than  upon 
any  accurate  knowledge  respecting  the  fact.  As  re- 
gards the  specie  portion  of  it,  there  is  no  existing  docu- 
ment that  can  throw  any  light  upon  its  amount.  The 
known  fact  that  much  is  imported,  which  does  not  ap- 
pear on  the  custom  house  books,  and  that  most  of  the 
plate  manufactured  in  the  country  is  made  from  melted 
coins,  added  to  the  probability  that  more  is  at  this  time 
hoarded  by  timid  people  than  in  ordinary  times,  arising 
from  the  late  suspension  of  specie  payments  by  the 
banks,  precludes  the  possibility  of  any  exact  estimate 
and  whether  the  true  amount  be  fifty  millions  of  dol- 
lars or  a hundred  millions  of  dollars,  or  some  interme- 
diate or  even  greater  sum,  it  is  not  possible  precisely 
to  determine.  The  common  impression  appears  to  be, 
and  it  may  possibly  be  as  near  the  truth  as  any  other 
sum  that  could  be  designated,  that  it  is  at  this  time 
about  eighty  millions  of  dollars."^ 

* This  amount  was  assumed  by  Mr.  Webster  in  a speech  early 
in  1838.  The  secretary  of  the  treasury,  in  his  report  on  the  fi- 
nances of  3d  December,  1838,  assumes  it  to  be  from  eighty-five 
to  ninety  millions  of  dollars. 


A TREATISE  ON 


if)0 

In  regard  to  the  extent  of  the  paper  portion  of  the 
currency,  the  statistical  documents  which  have  appear- 
ed at  times  from  the  treasury  department,  have  been 
imperfect,  from  the  want  of  uniformity  in  the  dates  at 
which  the  different  bank  statements  have  been  made 
out,  as  well  as  uniformity  in  the  mode  of  the  banks 
slating  their  accounts,  the  absence  of  which  renders 
them  not  easily  understood.  From  the  different  esti- 
mates that  have  appeared,  it  may,  perhaps,  be  assum- 
ing a fair  amount,  to  take  the  actual  paper  currency 
at  one  hundred  millions  of  dollars;  and  we  shall  ac- 
cordingly reason  upon  the  presumption  that  banks,  by 
the  substitution  of  their  paper  in  the  place  of  coin,  en- 
able the  country  to  employ  that  sum  as  commercial  cap- 
ital, and  of  course  to  add  to  the  wealth  of  the  country 
the  annual  profit  resulting  therefrom.^ 

The  next  point  to  be  considered  is,  how  much  is 
the  probable  annual  gain  made  upon  this  sum  from  its 
employment  as  commercial  capital,  instead  of  its  being 
employed  in  the  comparatively  unprofitable  service  of 
a circulating  medium. 

We  find  that  upon  the  security  of  state  and  other 
stocks  of  indubitable  credit,  we  have  borrowed  capital 
in  Europe  at  five  per.  cent  per  annum.  But  capital 
would  not  be  sought  for  at  that  rate  of  interest,  unless 
a profit  could  be  made  beyond  five  per  cent,  by  its 
employment  in  some  productive  branch  of  industry 
connected  with  agriculture,  commerce,  or  manufac- 
tures; for  without  such  productive  employment,  there 
could  be  no  accumulation  of  national  wealth,  and,  con- 
sequently, no  means  of  paying  the  interest.  It  would 
perhaps,  bea  fair  supposition  to  assume  in  the  United 
State  ten  per  cent,  per  annum  as  the  average  return 
upon  the  employment  of  capital  including  the  com- 
pensation for  the  services  of  the  undertaker  of  an  en- 
terprise; and  the  profit,  therefore,  that  the  country 

* Mr.  Webster  assumed  this  as  the  amount  in  the  speech  re- 
ferred to  in  the  foregoing  note.  See  also  Appendix.  (C) 


CURRENCY  AND  BANKING. 


161 


would  derive  from  converting  one  hundred  millions 
of  dollars  of  capital  unproductively  employed,  into 
capital  producing  ten  per  cent.,  would  be  ten  mUlions 
of  dollars.  In  addition  to  this,  the  country  would  save 
an  amount  equal  to  the  annual  wear  and  tear  of  a 
hundred  millions  of  dollars  in  coin,  the  amount  of 
which,  however,  is  too  small  to  be  noticed  in  a calcu- 
lation of  this  kind."^ 

Here,  then,  we  have  ten  millions  of  dollars  per  an- 
num as  the  whole  amount  standing  to  the  credit  of 
the  circulating  banking  system,  which  is  equal  to 
sixty  two  and  a half  cents  per  head  of  the  population, 
estimating  it  at  sixteen  millions  of  souls.  And  now, 
let  us  look  at  the  debit  side  of  the  account,  in  order  to 
ascertain  the  cost  at  which  this  great  paper  system  is 
maintained,  in  order  that,  by  striking  the  balance,  we 
may  be  enabled  to  determine,  with  a clear  and  unpre- 
judiced view  of  the  subject,  whether  the  country  is  or 
is  not,  upon  the  whole,  a gainer  by  the  system. 

The  cost  of  the  circulating  banking  system  may  be 
considered  under  two  heads  pecuniary  and  moral. 

Under  the  pecuniary  head,  the  first  thing  that 
strikes' us,  is  the  expense  of  maintaining  nine  hundred 
banks  and  branches,  comprising  the  salaries  of  the 
presidents,  cashiers,  tellers,  clerks,  book  keepers,  por- 
ters, watchmen,  and  runners,  the  rent  of  the  banking 

* The  director  of  the  mint,  in  a report  made  to  the  President 
of  the  United  States,  in  1826,  computes  the  loss  from  abrasion 
of  gold  coins  at  two  per  cent,  in  fifty  years,  and  silver  coins  at 
only  one  per  cent.;  from  which  it  would  appear  that  silver  is 
the  most  economical  currency  of  the  two. 

In  a report  made  to  the  Senate  of  the  United  States  in  1830 
by  a committee  of  which  Mr.  Sandford  was  chairman,  it  is  as- 
serted that  half  dollars  and  half  eagles  willcirculate  for  one  hun- 
dred years,  and  dollars  and  eagles  for  two  hundred  years,  with- 
out being  so  much  worn  or  defaced,  as  not  to  serve  the  purposes 
of  a currency. 

Mr.  Gallatin,  in  his  pamphlet  on  the  currency,  estimates  the 
loss  at  seventy  thousand  dollars  per  annum,  at  the  very  utmost, 
in  a coinage  of  forty  millions. 

14^ 


162 


A TREATISE  ON 


houses  or  the  interest  of  the  capital  invested  in  them, 
the  cost  of  copper  plates,  note  paper,  account  books, 
blank  checks,  stationery,  fuel,  postages,  and  the  nu- 
merous elements  which  constitute  the  annual  outlays 
of  a bank  of  circulation.  If  the  expenses  of  each  bank 
were  to  be  estimated  at  $2500  per  annum,  (a  large 
proportion  of  the  country  banks  being  small  ones,)  on 
an  average,  we  should  have  ®2,250,000,  as  the  cost  of 
their  support. 

This  however  is  but  a small  portion  of  the  cost  of 
banks  of  circulation.  The  principal  item  consists  in 
the  pecuniary  loss  sustained  by  the  public  in  the  sus- 
pension of  industry  occasioned  by  the^  derangement  of 
business  consequent  upon  expansions  and  contractions 
of  the  currency,  which  never  fail  to  unsettle  the  ordi- 
nary transactions  of  commerce;  by  the  waste  of  capi- 
tal arising  from  its  faulty  distribution  in  times  of 
speculative  excitement,  by  which  immense  sums  are 
expended  on  railroads  and  canals,  and  other  improve- 
ments which  have  been  improvidently  projected,  and 
have  never  been  completed,  or  have  not  been  worth 
after  they  were  finished  as  much  as  they  cost;  and 
by  the  unproductive  consumption  from  extravagance 
in  living,  that  never  fails  to  be  engendered  by  an  ex- 
pansion of  the  currency  and  its  attendant  facility  of 
borrowing,  which  gives  the  appearance  of  augmenting 
wealth,  to  persons  who  are  really  going  behind  hand. 
Every  one  acquainted  with  the  simplest  principles  of 
political  economy,  knows,  that  every  day’s  labor  that 
is  lost,  is  a loss  to  the  community  equivalent  to  the 
value  of  a day’s  labor,  for  the  plain  reason  that  a 
value  fails  to  be  produced  which  would  have  been 
produced,  and  that  this  loss  occurs,  whether  the  labor 
be  lost  in  agriculture,  commerce,  or  manufactures.  In 
a former  chapter  it  has  been  shown,  that  a million  of 
dollars  expended  on  a rail-road  or  canal  left  uncom- 
pleted, is  as  much  a loss  to  the  community,  as  if  the 
food,  clothing,  utensils,  and  materials  consumed  by 
the  laborers  whilst  engaged  on  the  work,  were  con- 


CURRENCY  AND  BANKING. 


163 


Slimed  by  fire  or  any  other  process;  and  that . an  im- 
provement which  costs  two  millions  of  dollars,  and  is 
only  worth  one  million  after  it  is  completed,  that  is, 
will  only  yield  an  income  equal  to  one  half  the  income 
which  could  have  been  derived  from  the  capital  em- 
ployed in  other  pursuits,  is  as  much  a loss  of  capital 
as  if  one  million  of  silver  dollars  had  been  thrown  into 
the  sea.  And  every  one  knows  that  the  man  who  ex- 
pends in  living  three  thousand  dollars  a year,  who  can 
really  afford  to  spend  but  two,  is  an  unproductive  con- 
sumer of  the  public  wealth  to  the  extent  of  this  ex- 
cess. What  all  these  items  would  amount  to,  it  is 
not  possible  to  ascertain,  but  it  is  hardly  likely  that 
any  body  who  has  watched  the  wasteful  and  lavish 
expenditure  of  capital  in  the  United  States,  upon  turn- 
pike roads,  canals,  and  railroads,  known  to  have  their 
origin  in  bank  facilities  and  bank  expansions,  that 
have  turned  out  worthless  or  partially  so,^  who  has 

* As  a specimen  of  unproductive  expenditures  on  Railroads 
and  Canals,  as  far  as  the  same  can  be  ascertained  from  the  mar- 
ket prices  of  stocks,  the  following  table  of  actual  sales  as  report- 
ed by  the  Board  of  Brokers,  of  New  York,  is  given. 

Sales  at  New  York,  of  Stocks,  in  the  months  of  November  1839,  and 
£pril  1840. 


Delaware  & Hudson  Canah 

Nov,  1839. 
I’or  Cent 

to  66 

V . 4- 
74  to 

^1,500,000 

■tiohawk  Si.  uailr’d, 

43 

53 

66 

(( 

69 

1,100,000 

Uatterson 

(( 

42 

48 

41 

ti 

42 

500,000 

Boston  & Providence 

(( 

92 

97 

90 

u 

96 

1,780,000 

New  Jersey 

(( 

73 

85 

80 

u 

82 

1.500.000 

1.300.000 

Pr’dence  & Stonington 

(( 

12 

17 

13 

(( 

19 

Boston  & Worcester 

ti 

99 

100 

107 

(( 

1,750,000 

Harlem 

(( 

32 

42 

45 

a 

47 

1,100,000 

Utica  & Schenectady 

(( 

105 

115 

121 

u 

125 

2,000,000 

Long  Island 

u 

52 

51 

(( 

53 

1,500,000 

Utica  & Syracuse 

(( 

98 

100 

no 

(( 

114 

800,000 

Auburn  and  Syracuse  “ 50  “ 47 

Only  three  out  of  12  have  commanded  par. 
A recent  report  made  to  the  Legislature  of 

“ 400,000 

New  York,  gives 

the  following  as  the  net  profit  in  1839,  of  some  of  the  foregoing 
roads,  viz: 


164 


A TREATISE  ON 


seen  the  prostration  of  business,  which  resulted  from 
the  suspensions  of  1814,  1837  and  1839,  and  from  the 
numerous  expansions  and  contractions  which  have 
taken  place  with  less  disastrous  results  at  various  other 
periods,  and  who  has  noticed  the  growth  of  luxury 
and  extravagance  created  by  the  facility  of  borrowing 
paper  money  of  banks;  it  is  hardly  likely,  I say,  that 
any  body  who  has  been  an  observer  of  all  these  ef- 
fects, would  doubt  that  they  were  quite  equal  upon 
an  average  of  years  to  the  remaining  seven  and  a half 
millions  of  dollars  which  stand  at  the  credit  of  the  cir- 
culating banking  system.  He  certainly  would  not 
doubt  this,  if  he  were  told,  what  is  the  fact,  that  if 
only  one-tenth  part  of  the  population  should  have  in- 
creased their  expenses  five  dollars  each  per  annum,  in 
consequence  of  the  cause  we  have  alluded  to,  this 
amount  would  be  exceeded.  To  these  items  of  pecu- 
niary cost,  may  be  added  the  loss  to  the  commiir>ity 
by  bank  failures  and  by  forgeries,^  and  the  expenses 
incident  to  the  prosecution  of  the  offenders,  by  the  loss 
of  bank  notes  burnt  or  otherwise  destroyed,  by  the 
support  of  brokers  who  deal  in  imcurrent  bank  notes, 
by  the  sacrifices  made  by  the  ignorant  in  the  sale  of 
such  notes,and  the  various  frauds  practised  upon  them. 

So  much  for  the  pecuniary  cost  of  the  circulating 
banking  system.  Let  us  now  examine  into  its  moral 
cost. 


Mohawk  & Hudson,  $ 58,279  equal  to  about  5.3  per  ct.  on  cap. 
Harlem,  - - 12,816  “ “ 1.2  “ “ 

Utica  & Schenectady,  223,720  “ “ 11.2  “ “ 

Long  Island,  - 5,755  ‘‘  “ 3.8  “ “ 

Utica  & Syracuse,  90,856  “ “ 11.3  “ “ 

Auburn  & Syracuse,  25,900  “ “ 6.5  “ “ 

* Bicknell’s  Counterfeit  Detector  and  Bank  Note  List,  of  1st 
Jan.  1839,  contains  the  names  of  54  banks  that  \md  failed  at  dif- 
ferent times;  of  20  fictitious  banks^  the  pretended  notes  of  which 
are  in  circulation;  of  43  banks  besides,  for  the  notes  of  which 
there  is  no  salej  of  254  banks,  the  notes  of  which  have  been 
counterfeited  or  altered;  and- 1395  descriptions  of  counterfeited 
and  altered  notes  then  supposed  to  be  in  circulation,  from  one 
dollar  to  five  hundred. 


CURRENCY  AND  BANKING. 


165 


And  here  we  are  first  met,  by  the  distress  of  mind 
and  suffering  experienced  in  times  of  contraction,  by 
the  tens  of  thousands  of  persons  who  have  accommo- 
dation loans  from  banks,  every  time  a note  comes 
round,  arising  from  the  uncertainty  of  its  renewal, 
and  the  apprehended  necessity  of  being  obliged  to 
raise  funds  elsewhere,  without  having  satisfactory 
security  to  oflfer.  To  this  must  be  added,  all  the  men- 
tal suffering  of  those  who  have  become  embarrassed 
by  over-trading  and  over-speculation,  into  which  they 
were  seduced  by  the  facility  of  bank  loans  and  the 
expansion  of  the  currency,  or  who,  although  prudent  in 
themselves,  have  been  embarrassed  by  the  overtra- 
ding of  others.  The  misery  originating  in  these  cau- 
ses, which  was  experienced  in  the  United  States 
during  the  years  1837,  1838,  and  1839,  was  of  incal- 
culable amount,  as  may  readily  be  inferred  from  the 
fact,  that  in  the  city  of  New  York  alone,  nearly  one 
thousand  failures  took  place  between  January  and 
July  of  the  year  first  above  named,  which  could  not 
have  happened  had  there  been  no  banks  of  circula- 
tion. * 

The  second  item  in  the  moral  cost  of  banks  of  cir- 
culation is  the  temptation  to  forgery,  by  which  so 
many  ingenious  mechanics,  calculated  by  their  skill 
and  dexterity  to  be  valuable  citizens,  have  ruined 
themselves,  and  augmented  the  number  of  the  con- 
victs in  our  prisons. 

A third  is,  the  temptation  they  hold  out  to  artful 
and  designing  men  to  create  banks  with  fictitious 
capitals,  by  which  the  intelligent  and  cautious,  as  well 
as  the  ignorant  and  unwary,  are  deceived,  and  in- 
duced to  give  currency  to  notes  which  represent  no 
capital  whatever.  The  extent  to  which  this  practice 
has  been  carried  is  probably  much  greater  than  is  com- 

^ In  the  month  of  October,  1839,  the  rate  of  interest  on  the 
best  commercial  paper  in  the  New  York  market,  was  at  times 
from  3 to  5 per  cent,  a month,  evincing  a distress  greater  than 
was  ever  before  known  in  that  city. 


166 


A TREATISE  ON 


monly  supposed,  and  had  it  not  been  for  the  investi- 
gations made  by  officers  or  committees  of  the  legisla- 
tures of  several  of  the  States  in  the  year  lS3vS,  into 
the  transactions  of  some  of  their  banks,  the  public 
might  long  have  remained  in  ignorance  of  it.  * 

A fourth  is,  the  temptation  to  a violation  of  truth 
by  discolored  statements  of  the  condition  of  the  banks 
made  periodically  to  the  legislatures,  especially  as  to 
the  amount  of  specie  in  the  vaults,  the  same  sum 
being  frequently  reported  by  different  banks  on  the 
same  day  as  composing  part  of  the  assets  of  each,  by 
which  the  moral  sense  becomes  blunted,  and  some- 
times even  prepared  for  perjury. 

A fifth  is,  the  temptation  constantly  existing  to  aug- 
ment the  profits  of  banks,  by  resorting  to  evasions 
if  not  positive  breaches  of  the  laws  against  usury,  and 
by  various  extortions  and  impositions.  Specimens  of 
this  description  of  offence  were  exposed  in  abundance 
in  the  chapter  on  the  expedients  resorted  to  by  some 
banks  to  augment  their  dividends. 

A sixth  is,  the  spirit  of  speculation  and  gambling 
in  stocks,  engendered  by  the  facility  of  borrowing  the 
credit  of  banks  through  the  means  of  post  notes  or 
otherwise,  by  which  imprudent  and  sanguine  men, 
not  only  abandon  industrious  pursuits,  and  lose  all 
their  property  and  that  of  other  people  besides,  but 
are  frequently  driven  by  desperation  to  frauds,  and 
even  forgeries. 

A seventh  is,  the  temptation  held  out  to  directors 
and  officers  of  banks  to  become  dealers  in  stocks,  the 
market  price  of  which  they  have  it  in  their  power  in 
a great  measure  to  control  by  their  action  on  the  cur- 

* See  the  Financial  Register,  for  the  Reports  made  to  the  Le- 
gislature of  Massachusetts,  upon  the  affairs  of  the  Common- 
wealth, Lafayette,  Hancock,  Fulton,  Kilby,  Norfolk,  Commer- 
cial and  Roxbury  Banks,  for  the  most  astounding  disclosures. 
See  also  the  same  work  for  a statement  of  the  affairs  of  the 
Lumberman’s  Bank  of  Pennsylvania,  and  the  Brandon  Bank  of 
Mississippi. 


CURRENCY  AND  BANKING. 


167 


rency,  or,  by,  tlieir  speculations  in  it  from  the  facilities 
afforded  to  themselves,  a consequence  of  which  some- 
times is,  that  false  entries  are  made  in  the  books  of 
the  banks,  concealments  practised,  accounts  over- 
drawn, money  abstracted,  and  even  false  certificates 
of  stock  issued,  as  they  have  been  by  the  officers  of 
other  corporations.  Numerous  notices  in  papers  of 
absconding  presidents,  cashiers  and  tellers  of  banks, 
have  appeared  in  the  papers  in  1838,  1839  and  1840, 
the  frauds  practised  by  some  of  whom  have  reached 
the  amount  of  half  a million,  and  in  one  case,  of  up- 
wards of  a whole  million  of  dollars. 

And  an  eighth  item  is,  the  tendency  to  destroy  all 
moral  sense  of  justice  and  rectitude  by  absolving  each 
individual  from  personal  liability,  for  the  acts  of  the 
corporation,  by  which  means,  caution  in  the  choice 
of  borrowers,  prudence  in  the  amount  of  loans,  a re- 
gard to  the  interests  of  the  public  in  the  distribution 
of  the  favors  of  the  bank,  are  lost  sight  of,  in  conse- 
quence of  which  banks  are  frequently  turned  into 
mere  loan  offices  for  the  accommodation  of  the  offi- 
cers and  directors  and  their  immediate  friends,  or 
lend  their  capitals  to  a few,  to  the  exclusion  of  the 
many;  and  when,  by  their  expansions,  they  cause  an 
explosion,  in  the  currency,  a callousness  is  displayed 
as  to  the  obligation  of  paying  honest  debts,  as  if  a 
legislative  act  of  incorporation  could  absolve  men 
from  the  discharge  of  their  moral  duties,  of  which  the 
payment  of  debts,  where  there  is  ability,  is  one. 

And  after  all  let  us  ask,  for  what  purpose  is  this 
pecuniary  and  moral  sacrifice  made?  It  has  been 
shown  that  banks  of  circulation  cannot  create  capi- 
tal, or  make  money  permanently  plenty,  and  so  far, 
therefore,  as  the  employment  of  the  industry  of  the 
country,  or  the  commerce  of  trade  are  concerned,  no 
advantage  whatever  is  gained  by  their  establishment. 
The  answer  is,  it  is  made  in  order  that  the  stock- 
holders of  banks  may  have  a chance  of  deriving  two 
or  three  per  cent,  interest  for  their  capitals  beyond 


168 


A TREATISE  ON 


legal  interest,  or,  that  speculators  who  generally  ori- 
ginate banks,  may  make  their  fortunes,  by  selling,  at 
a profit  to  others  the  stock  for  which  they  subscribed, 
but  perhaps  never  paid.  If  we  assume  ^350,000,000 
in  round  numbers  as  the  actual  amount  of  the  capi- 
tals, real  and  nominal  of  all  the  banks  in  the  United 
States,  it  will  result  that  to  the  mere  hope  of  gaining 
seven  to  ten  millions  of  dollars  per  annum,  are  to  be 
ascribed  all  the  disasters  which  have  resulted  to  the 
country  from  an  inflated  system  of  paper  money.  I 
say  to  the  hope  of  gaining,^’  because  the  hope  in 
numerous  cases  has  not  been  realized,  if  the  general 
depreciation  in  the  market  prices  of  bank  stocks,  is 
an  indication  of  the  general  belief  of  the  public,  that  a 
large  portion  of  their  capitals  has  been  lost  by  mis- 
management, by  frauds  and  by  the  insolvency  of 
borrowers. 


CHAPTER  VI. 

OF  THE  DIFFERENT  KINDS  OF  DEPRECIATION  TO 
WHICH  AN  INCONVERTIBLE  PAPER  CURRENCY  IS 
LIABLE. 

So  long  as  bank  notes  are  convertible  into  coin  on 
demand,  they  are  liable  to  depreciation,  or  a fall  in 
value,  in  common  with  the  gold  and  silver  for  which 
they  are  interchangeable,  from  all  the  causes  which 
we  have  shown  capable  of  producing  that  effect  upon 
a currency  purely  metallic.  But  in  addition  to  this, 
they  are  susceptible  themselves  of  depreciation  from 
excessive  issues,  and  in  such  event  involve  the  metal- 
lic portion  of  the  currency  in  the  same  depreciation. 
This  sort  of  depreciation  arising  from  excessive  is- 
sues, produces  the  same  effect  upon  a mixed  currency, 


CURRENCY  AND  BANKING. 


169 


as  the  excessive  importation  of  bullion  would  upon  a 
metallic  currency.  There  is,  however,  this  difference 
between  them.  The  one  can  always  be  removed 
sooner  or  later  by  the  exportation  of  the  superabund- 
ant metal,  whilst  the  other  cannot  always  be  removed 
by  a contraction  of  bank  loans,  as  the  several  exam- 
ples of  a general  suspension  of  specie  payments  in 
the  United  States  have  sufficiently  established. 

When  bank  notes  cease  to  be  convertible  into  coin, 
by  a general  suspension  of  specie  payments,  the  cur- 
rency may,  for  a long  period  together,  remain  without 
any  depreciation,  except  that  which  is  the  result  of 
the  excessive  issues  which  occasioned  the  suspension. 
During  the  long  suspension  of  payment  by  the  Bank 
of  England  from  1797  to  1821,  no  part  of  the  depre- 
ciation appears  to  have  resulted  from  any  want  of 
confidence  in  the  ultimate  ability  of  the  bank  to  pay 
its  notes,  for  had  such  want  of  confidence  been  dis- 
played, it  would  probably  have  shown  itself  immedi- 
ately after  the  stoppage.  Such,  however,  was  not 
the  fact.  The  bank,  by  restricting  its  issues,  for  some 
time  after  that  event,  to  an  amount  very  little  ex- 
ceeding their  accustomed  extent,  kept  up  the  value  of 
its  paper,  so  nearly  to  par,  that  the  market  price  of 
gold  for  two  years  after  the  suspension,  payable  in 
bank  notes,  did  not  exceed  the  mint  price,  which 
could  not  have  happened,  if  any  discredit  had  accom- 
panied the  depreciation.* 

The  same  may  be  said  of  the  two  general  suspen- 
sions of  specie  payment  which  took  place  in  the  Uni- 
ted States  in  1814  and  1837.  With  the  exception  of 
a comparatively  few  banks,  the  unsoundness,  or  im- 

* For  authority  on  this  subject,  see  the  Bullion  Report  of 
1810,  sect.  1,  which  will  be  found  in  the  Financial  Register. 
For  a part  of  this  time,  bank  notes  were  even  at  a small  pre- 
mium. See  M’Culloch’s  Commercial  Dictionary,  article  Bank 
of  England,  now  in  the  course  of  publication  in  Philadelphia, 
under  the  editorial  supervision  of  Professor  Vethake,  author  of 
a treatise  on  the  Principles  of  Political  Economy. 

15 


170 


A TREATISE  ON 


prudent  conduct  of  which  was  too  apparent  to  be  con- 
cealed, no  want  of  confidence  as  to  ultimate  solvency 
appears  to  have  entered  into  the  estimate  of  the  de- 
preciation. The  amount  of  excessive  issues  in  each 
place,  appears  to  have  determined  the  depreciation  of 
the  currency  of  that  place,  and  we  have  seen  that  just 
in  proportion  to  the  absorption  of  the  excess,  the  de- 
preciation disappeared. 

There  is,  however,  a reason  why  bank  notes  are 
not  necessarily  involved  under  a general  suspension 
of  specie  payments,  in  a depreciation  arising  from  dis- 
credit. The  public  is  always  indebted  to  the  banks  to  an 
amount  far  greater  than  the  banks  are  indebted  to  the 
public,  and  as  a bank  note  will  be  received  by  the  bank 
that  issues  it  in  discharge  of  a debt,  there  always  ex- 
ists, except  in  a case  of  an  extensive  bankruptcy  among 
the  borrowers,  a demand  for  notes  greater  than  the 
supply.  Herein  consists  the  difference  between  paper 
money  issued  by  banks,  and  paper  money  issued  by 
governments.  The  former  is  accompanied  by  a legal 
obligation  on  the  part  of  a responsible  borrower,  to 
return  it,  or  an  equal  sum  of  coin  to  the  bank  at  a 
specified  time  with  interest,  whilst  the  latter  is  uncon- 
nected with  any  such  stipulation,  and  in  most  cases 
forms  a much  larger  supply  than  is  wanted  for  pay- 
ments of  debts  and  taxes  to  the  government. 

A second  cause  of  depreciation  to  which  bank  notes 
are  liable,  is  a want  of  confidence  in  their  ultimate  re- 
demption, or  in  their  redemption  at  any  fixed  or  defi- 
nite period.  The  effect  of  this  depreciation,  where  the 
want  of  confidence  referred  to  is  very  considerable, 
is  to  hrow  the  notes  entirely  out  of  circulation,  except 
perhaps  in  the  immediate  vicinity  of  the  bank.  In  this 
event  they  are  bought  up  by  capitalists  to  hold  until  the 
bankcancollectitsdebts,  upon  the  very  fair  presumption 
that  the  whole  of  the  capital  of  the  stockholders  must  be 
sunk  before  any  loss  can  attach  to  the  creditors  of 
the  bank,  it  must  have  been  a miserably  managed  insti- 
tution, that  cannot  sooner  or  latter  contrive  to  pay  its 


CURRENCY  AND  BANKING. 


171 


notes,  even  though  the  stockholders  should  sink  their 
whole  capital.  In  estimating  the  extent  of  this  de- 
preciation, the  purchasers  of  such  bank  notes  would 
probably  expect  a full  remuneration  for  the  risk  they 
would  run  of  not  being  paid  at  all,  and  ample  interest 
for  the  longest  period  of  time  that  they  might  possibly 
have  to  wait,  before  that  fact  could  be  ascertained;  and 
it  is  more  than  probable,  that  amongst  these  purcha- 
sers would  be  found  many  solvent  debtors  of  the  bank 
who  would  postpone  the  payment  of  their  debts,  and 
plead  inability  in  order  to  profit  by  the  lowest  stage 
of  the  depreciation.^ 


* As  a specimen  of  the  extent  to  which  Bank  notes  may  be 
depreciated  by  the  mismanagement  of  Banks,  the  following  quo- 
tations are  given. 

From  the  New  Orleans  Price  Current  and  Commercial  Intelli- 
gencer  of  the  2bth  April  1840. 

Rates  of  Specie,  Bank  Notes,  ^c. 


Specie, 

5 

to 

6 per  ct.  premium. 

Alabama  State  Bank  and  Branches, 

3| 

(( 

44  discount. 

Tennessee  Banks, 

4 

(( 

6 

It 

Arkansas  Banks, 

30 

it 

35 

tt 

Pensacola,  Florida, 

20 

it 

25 

tt 

Life  & Trust,  Florida, 

Planters,  Agricultural  & Commercial 
of  Natchez,  on  demand,  (fives) 

20 

tt 

25 

it 

5 

it 

10 

tt  • 

Do.  do.  branches,  on  demand, 

10 

tt 

20 

tt 

Natchez  Railroad,  “ 

75 

u 

80 

tt 

West  Feliciana,  at  W^'ocdville  “ 

16 

(( 

20 

tt 

Bank  of  Port  Gibson,  (fives)  “ 

10 

tt 

15 

tt 

Commercial  Bank  Manchester,  “ 

10 

tt 

15 

tt 

Do.  Rodney,  “ 

35 

tt 

45 

(( 

Union  Bank  of  Mississippi,  “ 

55 

it 

60 

tt 

Commercial  Bank  of  Columbus  ‘‘ 

30 

it 

40 

it 

Grand  Gulf  Railroad  Co.  “ 

50 

tt 

55 

tt 

Lake  Wash’gton&  Deer  Creek,  “ 

55 

it 

60 

tt 

Commercial  & Railroad  Bank 
Vicksburgh,  “ 

55 

tt 

60 

tt 

Post  Notes. 

Commercial,  Agricultural,  & Planters 
Banks,  Natchez,  12  months,  spring 
of  1839,  bearing  interest,  „ 30 

tt 

40 

it 

172 


A TREATISE  ON 


Union  Bank  of  Mississippi, 

bearing  interest,  “ 55  “ 60  discount, 

Woodville,  Manchester  & Port 

Gibson,  “ 30  “ 40  “ 

Rodney,  do  35  “ 45  “ 

Natchez  Rail  Road,  do  75  “ 80  “ 

Commercial  & Railroad  Bank 

Vicksburgh,  55  “ 60  “ 

Bank  of  Vicksburgh,  60  “ 70  “ 

Waterworks  Bank  of  do.  60  to  70  “ 

Citizens’ Bank  of  Madison  County  80  “ 85  “ 

Tombigbee  Rail  Road  Co.  75  “ 85  “ 

Brandon  Bank,  93  “ 95  “ 

All  these  banks  are  in  the  state  of  Mississippi,  except  the  five 
first  named. 


CURRENCY  AND  BANKING. 


173 


BOOK  FOURTH. 

Having,  in  the  foregoing  three  books,  laid  before 
the  reader  the  laws  which  regulate  a metallic,  a mixed, 
and  an  inconvertible  paper  currency,  respectively, 
together  with  such  collateral  subjects  as  appeared  to 
me  to  be  necessary  to  a full  understanding  of  the  whole 
question,  I shall,  in  the  present  book,  invite  his  atten- 
tion to  a few  matters  of  a miscellaneous  character, 
which  do  not  exclusively  belong  to  either  of  the  fore- 
going classifications,  and  the  substance  of  which  will 
be  found  in  the  heading  of  the  several  chapters. 


CHAPTER  I. 

EXAMINATION  OF  THE  QUESTION,  OF  WHAT  DOES  A 
CURRENCY  CONSISTS 

There  is,  perhaps,  no  subject  upon  which  more  va- 
rious and  more  erroneous  opinions  prevail,  than  that 
which  we  now  propose  to  examine.  The  expansion 
of  the  currency,  the  contraction  of  the  currency,  the 
depreciation  of  the  currency,  are  every  day  expres- 
sions, and  yet  very  few  persons  can  precisely  point  out 
the  real  elements  of  which  the  currency  is  composed. 
In  many  public  documents,  of  late  years,  in  which 
reference  is  made  to  the  currency,  one  would  be  led 
to  infer,  that  the  coin  in  possession  of  the  public,  and 
the  bank  notes  in  circulation,  constituted  the  whole  of 
the  currency;  and  that,  consequently,  the  currency 
was  depreciated  or  improved  according  as  these  two 
elements  were  augmented  or  diminished.  Newspa- 
15^ 


174 


A TREATISE  ON 


per  writers  and  editors,  too,  generally  take  this  ground, 
and  it  is  really  amusing  to  see  the  frequent  attempts 
that  are  made  by  them,  to  illuminate  the  public  mind 
as  to  the  condition  of  certain  banks,  by  a mere  state- 
ment of  their  notes  in  circulation,  without  discrimina- 
ting between  post  notes  and  notes  payable  on  demand, 
and  leaving  out  of  view  entirely,  the  amount  of  depo- 
sites  and  other  immediate  liabilities  of  the  banks. 

The  most  palpable  error,  however,  that  prevails  in 
relation  to  this  subject,  is  the  notion  entertained  by 
many,  that  bonds,  bills  of  exchange,  and  promissory 
notes,  constitute  a part  of  the  currency.  If  this  be 
true,  currency,  or,  what  is  the  same  thing,  money, 
would  become  plenty  in  proportion  to  the  multiplica- 
tion of  these  evidences  of  debt;  whereas,  every  man 
of  observation  knows,  that  just  in  proportion  as  they 
are  multiplied,  currency  or  money  becomes  scarce, 
owing  to  the  demand  that  arises  for  the  means  of  pay- 
ing them  when  they  have  reached  maturity,  or  are 
becoming  due.  Indeed,  so  far  are  these  securities 
from  constituting  any  part  of  the  currency,  that  they 
even  require  a portion  of  that  which  is  currency 
always  to  be  kept  on  hand  by  the  persons  who  are 
bound  for  their  payment,  in  order  to  meet  them  at  the 
appointed  time.  The  most  that  can  be  said  of  this 
class  of  obligations  is,  that  they  arc  contracts  for  the 
payment  of  currency  or  money,  at  a future  day,  and 
as  far  as  they  are  negotiated  or  assigned  by  endorse- 
ment, in  the  course  of  business,  they  constitute  a por- 
tion of  those  various  substitutes  for  currency,  by  which 
the  country  in  which  they  are  used  is  saved  from  the 
expense  of  maintaining  a larger  metallic  or  paper  ma- 
chinery for  carrying  on  its  trade.  Their  operation, 
in  fact,  may  be  compared  to  that  of  the  clearing  house 
of  London,  whereat,  by  the  daily  meeting  of  the  clerks 
of  all  the  bankers,  to  make  a mutual  exchange  of  the 
acceptances  of  the  principals  of  each,  instead  of  a pay- 
ment in  money,  which  would  be  necessary  if  each 
acceptance  were  paid  at  each  banker’s  counter,  a very 


CURRENCY  AND  BANKING.  175 

large  amount  of  currency  is  economLsed,  to  the  great 
benefit  of  all  the  parties. 

Nor  is  the  opinion  less  erroneous  of  those  who  sup- 
pose that  public  securities  and  the  certificates  of  bank, 
canal,  and  railroad  stocks,  and  such  evidences  of  pro- 
perty, are  currency.  These  are  in  truth  nothing  but 
titles  for  property  of  a particular  sort,  and  no  more 
constitute  a part  of  the  currency  than  the  deeds  for 
lands  and  houses  which  the  owners  of  that  species  of 
property  possess. 

With  these  preliminary  remarks,  I will  now  state 
in  the  first  place,  that  the  currency  of  a country  in 
which  there  is  no  paper  money,  consists,  and  consists 
only,  of  gold  and  silver,  and  any  other  commodity 
which  constitutes  a legal  tender,  and  which  every 
creditor  is  obliged  by  law  to  accept  in  discharge  of  a 
debt.  Thus,  in  Virginia,  in  the  year  1618,  tobacco 
was  made  a legal  tender  at  three  shillings  per  pound; 
and  in  Massachusetts  in  1641,  corn  was  made  a legal 
tender  at  a fixed  price;  and  in  1643,  Wampompeag 
(an  article  of  traffic  with  the  Indians)  was  invested 
with  the  same  power  in  payment  of  debts  to  the 
amount  of  forty  shillings,  the  white  at  eight  a penny, 
the  black  at  four  a penny,  except  for  county  rates. — 
Thus,  also,  in  Maryland,  so  late  as  1732,  an  act  was 
passed  making  tobacco  a legal  tender  at  one  penny  a 
pound,  and  Indian  corn  at  twenty  pence  a bushel.  In 
all  these  cases,  the  articles  thus  made  a legal  tender, 
constituted  a part  of  the  currency  as  much  as  gold 
and  silver;  but  as  such  absurd  regulations  could  not 
but  have  led  to  the  immediate  production  of  extra- 
ordinary quantities  of  the  articles  named,  it  is  presu- 
mable that  they  are  to  be  regarded  as  the  mere  follies 
of  a moment.* 

* For  a highly  interesting  and  instructive  history  of  the  me- 
dium of  trade,  before  the  introduction  of  paper  money  into  the 
American  Colonies,  and  of  the  paper  money  issued  by  the  va- 
rious colonies,  see  “ History  of  Paper  Money  and  Banking,”  by 
William  M.  Gouge. 


176 


A TREATISE  ON 


In  countries  at  the  present  day,  which  carry  on  their 
affairs  without  paper  money,  gold  and  silver  are  the 
only  currency.  In  some,  one  metal  alone  is  used,  and 
in  others,  both  metals  at  certain  fixed  proportions.  In 
some  countries  too,  the  legal  coins  alone  of  the  nation 
are  current,  whilst  in  others  foreign  coins  circulate 
upon  the  same  footing  as  the  coins  of  the  country. 
Copper,  too,  is  the  currency  of  some  countries,  for 
even  large  amounts;  but  this  metal  constitutes  so 
small  a portion  of  the  currency  of  most  countries,  that 
it  is  lost  sight  of,  in  discussions  of  this  sort,  precisely 
as  it  is  lost  sight  of,  when  employed  in  the  alloy  of 
silver  coins. 

In  countries  where  government  paper  money  exists, 
but  where  banks  have  not  been  introduced,  the  ele- 
ments which  compose  the  currency  are  necessarily 
increased  in  number.  They  consist  ^f  not  only  gold 
and  silver,  but  of  the  promises  of  the  government  to 
deliver  at  a future  fixed,  or  at  an  indefinite  period, 
certain  quantities  of  those  metals,  accompanied  by 
threats  of  punishment  against  all  who  should  refuse 
to  accept  of  the  same  in  payment  of  debts.  Such  was 
the  character  of  the  paper  money  issued  by  the  colo- 
nial governments  of  Pennsylvania  and  other  states, 
prior  to  the  American  revolution,  and  such  was  that 
of  the  three  hundred  and  sixty  millions  of  dollars  of 
continental  money,  issued  by  the  American  congress 
in  seven  years,  commencing  with  1775  and  ending 
with  1781.^  Such  also  was  the  character  of  the  assig- 
nats of  revolutionary  France,  and  such  is  that,  proba- 
bly, of  the  actual  paper  money  of  some  nations  of 
continental  Europe,  Large  issues,  however,  soon  de- 
preciate the  currency,  drive  out  of  circulation  the  me- 
tallic portion  of  it,  and  leave  nothing  but  promises  be- 
hind, which  are  rarely  redeemed. 

It  may  here  not  be  out  of  place  to  remark,  that  the 

* See  Gouge  on  Banking  for  a particular  history  of  the  con- 
tinental paper  money. 


CURRENCY  AND  BANKING. 


177 


British  exchequer  bills,  and  the  treasury  notes  of  the 
United  States,  both  of  which  are  payable  with  inter- 
est, have  not  the  character  of  paper  money.  They 
are  merely  evidences  of  a temporary  debt  of  the  go- 
vernments which  issue  them,  are  sold  in  market  like 
public  stocks,  and  have  no  more  influence  in  aug- 
menting the  mass  of  the  currency,  than  the  bonds, 
acceptances,  or  promissory  notes  of  individuals. 


CHAPTER  II. 

EXAMINATION  OF  THE  aUESTION,  OF  WHAT  DOES  A 
CURRENCY  CONSIST?  CONTINUED. 

In  countries  where  there  is  no  government  paper 
money  existing,  as  is  the  present  case  in  Great  Britain, 
France,  and  the  United  States,  the  currency  consists 
of  those  gold  and  silver  coins  which  people  are  obliged 
to  accept  by  law  in  discharge  of  debts,  and  of  such 
promises  of  banks  or  bankers  to  deliver  certain  quan- 
tities of  those  coins  on  demand  whenever  called  upon, 
as  the  public  or  the  great  body  of  creditors  are  willing 
to  accept  in  lieu  of  the  coins  themselves.^ 

* The  notes  of  the  Bank  of  England  are  made  by  law  a legal 
tender,  except  in  the  payment  of  its  own  debts,  but  no  such 
measures  can  be  practised  in  the  United  States,  where  by  the 
Federal  Constitution,  it  is  declared,  that  no  state  “shall  coin 
money,  emit  bills  of  credit,  make  any  thing  but  gold  and  silver 
coin  a tender  in  payment  of  debts,”  &c.  The  authority  of  Con- 
gress over  the  currency,  is  limited  by  the  same  instrument  to 
the  simple  power,  “ to  coin  money,  to  regulate  the  value  there- 
of, and  of  foreign  coins.”  In  the  exercise  of  this  power,  it 
authorised  by  act  of  2d  April,  1792,  the  coining  of  silver  dollars 
to  contain  37 1|  grains  of  pure,  or  416  grains  of  standard  silver, 
(the  standard  being  892.4  thousandths)  half  dollars,  quarter 
dollars,  dimes,  and  half  dimes,  containing  respectively,  one  half, 
one  fourth,  one  tenth,  and  one  twentieth  part  of  the  silver  con- 


178 


A TREATISE  ON 


As  to  the  first  element  here  laid  down,  there  can 
he  no  dispute,  inawsmuch  as  every  body  must  admit 
that  the  gold  and  silver  coins  recognised  by  law,  con- 
stitute a part  of  the  currency.  Still  it  may  be  proper 

tained  in  the  dollar;  and  by  act  of  January  18,  1837,  the  coin- 
ing of  silver  dollars,  each  to  contain  37 1^  grains  of  pure,  or 
412i  grains  of  standard  silver,  (the  standard  being  raised  by 
this  act  to  900  thousandths,  that  is,  to  nine  parts  pure  to  one  of 
alloy)  with  the  fractions  of  a dollar  above  enumerated,  contain- 
ing the  same  proportions. 

It  also  authorised  by  act  of  2d  of  April,  1792,  the  coining  of 
gold  eagles  to  contain  each  247-^  grains  of  pure,  or  270  grains 
of  standard  gold  (the  standard  being  22  carats,  that  is  eleven 
parts  pure  metal  to  one  of  alloy,  corresponding  to  916|  thou- 
sandths) half  eagles,  and  quarter  eagles,  containing  respectively, 
one  half,  and  one  fourth  of  the  gold  contained  in  the  eagle;  and 
by  act  of  28th  June,  1834,  the  coining  of  gold  eagles  to  contain 
each  232  grains  of  pure  gold,  or  258  grains  of  standard  gold 
(the  standard  having  by  this  act  been  lowered  to  21.58  carats 
and  a small  fraction,  corresponding  to  899.225  thousandths) 
with  the  parts  of  an  eagle  above  enumerated,  containing  the 
same  proportions;  and  by  act  of  January  18,  1837,  the  coining 
of  gold  eagles  to  contain  each  232}  grains  of  pure,  or  258  grains 
of  standard  gold  (the  standard  having  by  this  act  been  raised  to 
21.60  carats,  corresponding  to  900  thousandths)  with  the  parts 
of  an  eagle  above  enumerated  containing  the  same  proportions. 
When  not  of  full  weight,  these  gold  coins  are  a legal  tender  at 
proportionate  rates. 

In  reference  to  foreign  coins,  the  laws  have  been  frequently 
altered,  there  having  been  periods  at  which  none  but  the  Span- 
ish dollar  was  a legal  tender.  That  coin  is  still  a legal  tender, 
but,  as  it  is  worth  in  the  market  five  per  cent,  more  than  the 
American  dollar  for  exportation  to  China  and  some  other  coun- 
tries, where  it  passes  for  more  than  its  intrinsic  worth,  owing 
to  its  being  there  universally  known,  it  is  never  now  seen  in 
circulation.  Other  foreign  coins,  however,  are  now  legal  ten- 
ders, as  will  appear  from  the  following  extracts  from  the  laws: 

By  act  of  25th  June,  1834,  it  is  enacted  “ That  from  and  after 
the  passage  of  this  act,  the  following  silver  coins  shall  be  of 
the  legal  value,  and  shall  pass  current  as  money  within  the 
United  States  by  tale,  for  the  payment  of  all  debts  and  demands 
at  the  rate  of  one  hundred  cents  the  dollar,  that  is  to  say,  the 
dollars  of  Mexico,  Peru,  Chili,  and  Central  America,  if  not  less 
weight  than  415  grains  each,  and  those  re-stamped  in  Brazil,  of 
the  like  weight,  of  not  less  fineness  than  10  ounces  15  dwts.  of 


CURRENCY  AND  BANKING. 


179 


to  remark,  that  that  portion  of  the  coin  which  is  at 
any  time  not  in  the  actual  possession  of  individuals, 
but  lying  in  the  vaults  of  the  banks,  and  for  the  pay- 
ment of  which  on  demand  the  public  is  in  possession 


pure  silver  in  the  troy  pound  of  12  ounces  of  standard  silver; 
and  the  five  franc  pieces  of  France,  when  of  not  less  pureness 
than  10  ounces  and  16  dwts.  in  12  ounces  troy  weight  of  stand- 
ard silver,  and  weighing  not  less  than  384  grains  each,  at  the 
rate  of  93  cents  each.” 

And  by  act  of  28th  June,  1834,  it  is  enacted,  “That  from  and 
after  the  31st  of  July  next,  the  following  gold  coins  shall  pass 
current  as  money  within  the  United  States,  and  be  receivable 
in  all  payments  by  weight,  for  the  payment  of  all  debts  and 
demands,  at  the  rates  following,  that  is  to  say,  the  gold  coins 
of  Great  Britain,  Portugal,  and  Brazil,  of  not  less  than  22  carats 
fine,  at  the  rate  of  94  cents  and  of  a cent  per  pennyweight; 
the  gold  coins  of  France,  nine-tenths  fine,  at  the  rate  of  93 
cents  and  of  a cent  per  pennyweight;  and  the  gold  coins 
of  Spain,  Mexico,  and  Columbia,  of  the  fineness  of  20  carats  3 
grains  and  of  a grain  at  the  rate  of  89  cents  and  of  a cent 
per  pennyweight.” 

There  are  no  legal  tenders  now  existing  by  law,  but  those 
enumerated. 

In  England,  silver  is  not  a legal  tender  for  any  sum  exceed- 
ing forty  shillings. 

The  following  statement,  by  the  Director  of  the  U.  S,  Mint, 
showing  the  fineness  and  value  of  certain  gold  and  silver  coins, 
was  communicated  to  Congress  on  the  7th  April,  1840,  by  the 
Secretary  of  the  Treasury. 

GOLD  COINS. 


Fineness  in 

Value  pr,  < 

thousandths 

Great  Britain,  sovereign. 

915  5 

cts»  94  62 

France,  pieces  of  40  and  20  francs, 

899 

92  92 

Spain,  doubloon  and  parts. 

866 

89  51 

Mexico,  do. 

866 

89  51 

Peru,  do. 

868 

89  71 

Chili,  do. 

868 

89  71 

Columbia,  doubloons  of  Bogota 

870 

89  92 

“ do.  of  Popoyan 

858 

88  68 

New  Grenada,  doubloons,  1837,  ’38 

, 871 

90  02 

Bolivia,  do. 

870 

89  92 

Central  America,  do. 

830 

85  79 

La  Plata,  do. 

815 

84  24 

Portugal,  Johannes  and  half 

914 

94  46 

180 


A TREATISE  ON 


of  the  promises  of  the  banks,  is  not  to  be  considered 
as  a part  of  the  currency,  if  the  promises  which 
represent  it  are  estimated  as  a part.  Thus,  if  a bank 
has  ^500,000  in  specie  in  her  vaults,  and  has  pro- 
mises out  payable  on  demand  for  ® 1,000,000,  in  esti- 
mating the  currency  as  far  as  this  bank  is  concerned, 
the  specie  would  not  be  added  to  the  amount  of  the 
promises,  and  thus  make  an  aggregate  of  ® 1,500,000, 
currency.  In  making  up  an  aggregate  statement  of 
the  two  elements  of  the  currency,  it  is  not  material 
whether  the  specie  in  the  banks  be  counted,  if  at  the 
same  time  the  amount  of  the  promises  which  repre- 
sent it  be  reduced  in  the  estimate  to  an  equal  extent, 
or,  whether  that  specie  be  not  counted,  and  the  amount 
of  the  promises  remains  without  reduction.  The 
aggregate  result  is  the  same,  but  I nevertheless  give 
a preference,  for  the  sake  of  simplicity,  to  the  latter 
mode  of  stating  the  case,  and  would  therefore  say, 
that  the  metallic  portion  of  the  currency,  we  are  exa- 
mining, consists  alone  of  the  coins  in  the  hands  and 
pockets  of  the  public. 

Fineness  in  Value  pr.  dwt, 

thousandths 

Portugal  crown  (of  5000  reis)  and 

half  since  1838,  914  cts.  94  46 

Brazil,  piece  of  6400  reis,  of  1838,  914  94  46 


SILVER  COINS. 

Fineness  in  Value  pr.  oz, 
thousandths 

Spain,  dollar  of  the  peninsula,  900  cts.  116  36 

“ pillar  dollar  of  Spanish  America,  898  116  10 

France,  crown,  (ceased  to  be 

coined  in  1793),  909  117  53 

“ five  frank  piece,  900  116  36 

Mexico,  dollar,  average  of  various 
mints,  and  in  the  proportion 

usually  presented  here,  897  115  97 

Peru  and  North  and  South  Peru  dollar,  901  116  49 

Chili,  dollar,  906  117  13 

Central  America,  dollar,  896  115  84 

Brazil,  restamped  dollar  of  960  reis,  898  116  10 


CURRENCY  AND  BANKING. 


181 


In  treating  of  the  second  element  of  our  currency, 
the  first  thing  to  be  established  is,  that  the  promise  of 
the  bank  or  banker,  which  passes  current  for  money, 
must  be  a promise  payable  on  demand^  and  not  at 
any  future  period.  Every  body  knows  the  meaning 
of  the  term  ready  money  or  cash  to  be,  something 
that  is  available  for  the  payment  of  a debt  at  the  very 
instant  it  is  received.  A merchant  who  has  a note  to 
pay  for  a thousand  dollars,  on  the  first  day  of  July, 
knows  that  he  can  not  pay  it  on  the  day  it  is  due,  ex- 
cept with  coin,  or  the  promise  of  a bank  or  banker 
to  pay  coin  of  which  payment  may  be  demanded  on 
that  same  day.  If  he  is  even  in  possession  of  a 
post  note  of  a bank  or  of  a treasury  note  due  on  any 
subsequent  day,  he  can  not  avail  himself  of  it  as  cash, 
any  more  than  he  can  avail  himself  of  the  promis- 
sory note  of  an  individual,  but  must  convert  it  into 
cash  or  currency,  by  getting  it  discounted.  It  is  quite 
easy  to  conceive  of  a great  pressure  existing  in  the 
money  market  of  a commercial  city,  whilst  the  par- 
ties pressed  for  money,  are  in  possession  of  an  abun- 
dance of  such  treasury  notes,  or  of  post  notes,  of  the 
best  banks.^ 

But  in  order  that  bank  notes  shall  constitute  a part  • 
of  the  currency,  they  must  not  only  be  payable  on  de- 
mand^ but  they  must  be  universally  current  at  the  place 
where  they  are  offered  in  payment  of  debts.  Thus, 
the  notes  of  banks  not  located  in  Philadelphia  are  not, 
generally  speaking,  currency  in  Philadelphia.  It  hap- 
pens indeed  very  often,  that  some  of  the  banks  in  all 
parts  of  the  country,  find  their  account  in  accommo- 
dating their  customers  by  receiving  from  them  as  cash 
the  notes  of  distant  banks;  and  it  may  even  happen, 

* In  May,  1837,  just  before  the  stoppage  of  specie  payments, 
post  notes  of  the  Bank  of  the  United  States  sold  in  Philadelphia, 
at  a discount  of  1 to  If  per  cent,  a month. 

In  the  early  part  of  October,  1839,  before  the  second  stoppage 
of  specie  payments  in  Philadelphia,  they  sold  there  at  1|  to  2 per 
cent,  a month. 

16 


182 


A TREATISE  ON 


that  individuals  may  frequently  find  it  their  interest  to 
receive  distant  bank  notes  in  exchange  for  goods,  or 
in  payment  of  debts.  But  in  the  great  mass  of  cases, 
the  notes  of  distant  banks  are  sold  in  the  market  for 
currency  just  like  bills  of  exchange,  thus  proving,  that 
not  only  do  they  not  constitute  any  portion  of  the  cur- 
rency, but  that  they  even  require  a jarge  amount  of 
what  is  currency,  to  be  held  by  brokers,  for  the  pur- 
pose of  buying  them,  and  thus  rendering  them  availa- 
ble to  their  owners. 

Having  thus,  as  I conceive,  settled  two  important 
points  in  reference  to  the  promises  of  banks  which 
constitute  a portion  of  the  currency,  I come  now  to 
examine  those  promises  themselves,  and  to  see  wherein 
they  consist. 

The  promises  of  banks  for  the  payment  of  coin  on 
demand,  consist  of, 

First:  Bank  notes  promising  to  pay  to  the  bearer  on 
demand,  a certain  sum  of  money, and  which  are  always 
negotiable  by  mere  delivery,  therein  differing  from  the 
ordinary  promissory  notes  of  individuals,  which  are 
drawn  to  order,  and  are  negotiable  by  endorsement. 

Secondly:  Bank  credits,  or  what  are  more  commonly 
• called  deposites,  being  those  amounts  which  stand  to 
the  credit  of  parties  on  the  books  of  banks,  and  which 
are  at  all  times  payable  on  demand  in  coin,  the  same 
as  bank  notes,  or  which  may,  if  the  parties  prefer  it,  be 
at  any  time  converted  into  bank  notes. 

It  is  essential,  however,  as  in  the  case  of  bank  notes 
in  order  that  these  credits  shall  constitute  a part  of  the 
currency,  that  they  be  payable  on  demand^  for  the 
very  plain  reason,  that  a deposite  payable  at  a future 
day  stands  upon  the  same  footing  precisely,  as  a post 
note  of  a bank  payable  at  a future  day,  and  cannot  be 
available  as  money  before  it  is  due,  any  more  than 
any  other  debt.  Hence  the  deposits  of  our  savings 
banks  which  are  only  payable  at  future  periods,  after 
due  notice  given,  constitute  no  part  of  the  currency. 
The  same  is  true  of  those  deposites  which  have  been 


CURRENCY  AND  BANKING. 


183 


for  some  years  habitually  received  by  some  of  the 
New  England  banks,  for  fixed  periods  at  a stipulated 
interest,^  and  those  which  some  of  the  banks  in  other 
states,  and  especially  in  the  southwestern,  have  found 
it  for  their  interest  since  the  late  money  crisis,  to  accept 
for  definite  periods  from  holders  of  their  notes,  who 
were  willing  to  give  time  for  their  claims  upon  the 
payment  of  interest,  or  from  others  who  were  willing 
to  assist  them  by  loans  of  money.  And  it  may  also  be 
remarked,  that  as  far  as  any  portion  of  the  deposits 
stands  to  the  credit  of  parties,  such  as  trustees,  execu- 
tors and  administrators  of  estates,  guardians  of  minor 
children,  officers  of  courts,  and  others,  who  have  de- 
posited a fund  to  meet  future  demands,  but  without 
any  immediate  intention  or  authority  to  use  it,  so  far 
they  are  to  be  viewed  in  the  same  light  as  deposits 
payable  at  a future  day,  and  not  as  currency.  Thus, 
if  ten  thousand  dollars  be  deposited  in  a bank  by  the 
assignee  of  an  estate,  to  remain  until  a dividend  is  de- 
clared amongst  creditors  sixty  days  hence,  the  bank 
could  lend  that  money  for  sixty  days  without  aug- 
menting the  currency,  and  for  this  simple  reason,  that 
the  depositor,  had,  upon  the  hypothesis  assumed,  part- 
ed with  his  right  to  the  same  fund  for  sixty  days;  and 
therefore  stood  upon  the  same  footing  as  other  depos- 
itors whose  claims  were  payable,  not  on  demand,  but 
at  a future  fixed  day. 

And  here  I will  beg  the  reader  to  mark  well  the 
distinction  between  a deposit  in  a bank  of  discount, 
and  a deposit  in  a bank  of  circulation.  The  former 
constitutes  no  part  of  the  currency,  as  I have  asserted 
in  the  first  chapter  of  the  second  book,  for  the  simple 
reason  that,  although  the  depositor  may  have  the  right 
to  draw  out  his  coin  on  demand,  yet  this  right  is  in- 

* By  a statement  made  of  the  condition  of  the  banks  of  Mas- 
sachusetts, in  October,  1837,  it  appeared  that  the  cash  deposited 
bearing  interest  was  ®5, 318,484,  whilst  that  not  bearing  interest 
was  but  §8,231, 58  >, 


1S4 


A TREATISE  ON 


separably  connected  with  the  obligation  on  the  part 
of  somebody  else,  to  pay  into  the  hands  of  the  banker 
simultaneously  an  equal  amount,  in  order  that  the 
banker’s  stock  of  cash  in  hand  to  meet  daily  or  unex- 
pected calls  may  remain  undiminished.  In  the  case 
of  a bank  of  circulation  the  matter  is  widely  different. 
The  depositor  may  be  paid  the  amount  of  his  depos- 
ite  in  bank  notes,  without  its  being  essential  to  such 
payments  that  any  debtor  of  the  bank  should  be  ob- 
liged simultaneously  to  discharge  his  debt,  the  opera- 
tion being  merely  the  substitution  of  one  form  of  bank 
credit  for  another,  and  it  is  therefore  in  reference  to 
such  a bank  that  these  remarks  are  made. 

I am  aware  that  in  estimating  bank  deposites  as  a 
part  of  the  currency,  I am  advancing  a doctrine  upon 
which  a difference  of  opinion  exists  amongst  intelli- 
gent men,  and  for  the  full  establishment  of  which 
some  elucidations  may  be  necessary.  I first  asserted 
this  opinion,  in  the  year  1821,  in  a report  on  the  re- 
newal of  bank  charters,  made  to  the  senate  of  Penn- 
sylvania, and  I have  never  seen  any  reason  since  to 
believe  that  it  was  erroneous. 

Bank  deposites,  as  they  are  called,  originate  in  the 
following  four  ways: — 

First,  Where  a party  deposites  specie  in  a bank. 

Secondly.  Where  he  deposites  bank  notes. 

Thirdly.  Where  he  deposites  a note  for  collection, 
and  the  amount,  after  it  is  collected,  is  placed  to  his 
credit. 

Fourthly.  Where  he  gets  a note  discounted,  and 
the  net  proceeds  are  passed  to  his  credit. 

In  either  of  these  cases,  the  depositor  has  a right  to 
draw  out  from  the  bank  either  in  coin  or  bank  notes, 
without  giving  a moment’s  notice,  the  whole  amount 
standing  to  his  credit."^  He  stands,  therefore,  upon 

* If  there  be  any  private  stipulation  with  a depositor  whose 
deposites  arise  from  his  having  been  accommodated  with  dis- 
counts, that  he  is  to  leave  a certain  amount  undrawn  for,  that 
amount  is  to  be  considered  as  a deferred  debt  of  the  bank,  and 
not  as  currency. 


CURRENCY  AND  BANKING. 


185 


precisely  the  same  footing,  as  regards  his  power  of 
operating  in  the  money  market,  or  in  the  purchase  of 
merchandise,  as  any  other  person  who  possesses  bank 
notes,  seeing,  that  if  those  with  whom  he  deals  should 
prefer  bank  notes,  he  can  just  as  readily  pay  them  in 
that  way,  by  sending  to  the  bank,  as  by  giving  them 
a check.  So  true  is  it,  that  deposites  constitute  cur- 
rency as  much  as  bank  notes,  that  in  all  our  commer- 
cial cities,  no  other  currency  is  used  in  all  extensive 
transactions.  In  all  the  cities  of  the  United  States, 
nearly  all  payments  of  money,  except  in  very  small 
sums  in  retail  transactions,  are  made-  in  checks  on 
banks,  and  it  is  very  clear  that  if  deposites  were  not 
as  much  currency  in  the  money  market  as  bank  notes, 
all  dealers  and  traders  would  be  furnished  with  the 
latter,  instead  of  the  former.  In  truth  deposites  are 
nothing  but  specie  or  bank  notes,  left  in  the  keeping 
of  the  banks  for  the  convenience  of  the  owner. 

But  again.  Let  us  test  the  soundness  of  this  view, 
by  a few  hypothetical  cases.  Suppose  the  banks  in 
New  York  should  all  at  once  unite  in  augmenting 
their  discounts  to  the  amount  of  five  millions  of  dol- 
lars, by  which  process  their  immediate  liabilities 
would  be  in  a moment  augmented  to  that  extent  in 
the  form  of  deposites.  Would  the  currency  of  New 
York  be  expanded?  Would  money  be  more  plenty 
than  before?  Would  competitors  in  the  market  with 
ready  cash  in  hand  be  multiplied?  If  the  answer  to 
these  questions  be  in  the  affirmative,  and  it  is  difficult 
to  see  how  they  could  be  otherwise,  would  the  expan- 
sion of  the  currency  amount  to  five  millions  of  dollars, 
or  only  to  the  sum  which  should  be  equal  to  the 
amount  of  the  bank  notes  that  might  be  drawn  out 
by  the  holders  of  these  deposites,  which  would  in  all 
probability  be  but  a small  portion  of  the  whole  five 
millions?  No  one  will,  I think,  contend  that  the  ex- 
pansion was  not  equal  to  the  whole  five  millions,  and 
it  would  consequently  follow,  that  to  restore  the  cur- 
rency to  its  former  position,  a contraction  of  five  mil- 
16^ 


186 


A TREATISE  ON 


lions  would  be  necessary,  and  not  merely  the  absorp- 
tion of  the  notes,  which  might  have  been  in  the  mean 
time  added  to  the  mass  in  circulation. 

Again,  suppose  at  a period  when  the  currency  was 
in  a sound  condition,  money  being  neither  too  abun- 
dant nor  too  scarce,  the  banks  of  New  York  should, 
from  some  unfounded  apprehensions,  all  at  once  re- 
duce their  loans  to  the  extent  of  two  millions  of  dol- 
lars, by  which  means  their  debtors  should  be  obliged 
to  raise  funds  in  the  market  from  that  class  of  persons 
who  had  deposites  in  the  banks,  and  who  would  of 
course  draw  checks  upon  them,  and  thus  extinguish 
the  liabilities  of  the  banks  existing  in  the  form  of  de- 
posites, to  the  extent  of  two  millions.  Would  the 
currency  of  New  York  be  contracted?  Would  money 
be  scarcer  than  before?  Would  competitors  in  the 
market  with  ready  cash  in  hand  be  diminished?  A 
negative  answer  could  hardly  be  given  to  either  of 
these  questions,  and  hence  the  conclusion  would  seem 
to  be  self-evident,  that  deposites  form  a part  of  the 
currency. 

Indeed,  it  is  through  the  deposites  of  banks  that  the 
most  powerful  action  is  exercised  upon  the  currency, 
where  contractions  are  resorted  to.  Debtors  who  are 
called  upon  to  pay  up  large  sums,  would  find  it  very 
difficult  to  procure  them,  if  they  were  obliged  to  hunt 
up  bank  notes,  scattered  all  over  the  country;  and  if 
a city  bank  were  fearful  of  being  hard  pressed,  she 
would  have  very  little  concern  about  her  notes,  if  she 
could  only  get  clear  of  the  demands  of  her  depositors. 
Deposites,  in  fact,  in  large  commercial  cities,  consti- 
tute the  largest  portion  of  the  currency.  In  the  city 
of  New  York,  on  the  1st  of  June,  1837,  shortly  after 
the  stoppage  of  specie  payments,  the  amount  of  notes 
in  circulation  outstanding  for  all  the  city  banks,  was 
® 5,283, 950,  whilst  the  amount  of  deposites,  public  and 
private,  was  ^15,843,171. 

By  the  contraction  which  subsequently  took  place, 
the  notes  in  circulation  were  reduced,  by  the  1st  of 


CURRENCY  AND  BANKING.  187 

April,  1838,  to  322, 186,  and  the  deposites  to 
®1 1,492,486. 

I apprehend  that  no  merchant  in  New  York,  who 
felt  the  pressure  of  that  process,  considered  that  a re- 
duction of  the  deposites  to  the  extent  of  four  and  a 
quarter  millions  of  dollars,  was  no  diminution  of  the 
currency;  and  if  we  take  into  consideration  the  large 
amount  of  these  notes,  which  must,  at  all  times,  be 
circulating  at  a distance  from  the  city  of  New  York, 
we  shall  also  be  satisfied,  that  deposites  not  only  form 
a part  of  the  currency  of  that  city,  but  a very  large 
part  of  it. 

An  examination  of  the  condition  of  the  banks  of 
Philadelphia,  would  also  show  an  excess  of  deposites 
over  circulation.  By  a statement  of  the  condition  of 
the  fifteen  banks  of  the  city  and  liberties,  on  the  3d  of 
November,  1838,  (exclusive  of  the  Bank  of  the  Uni- 
ted States),  made  to  the  legislature,  it  appears  that  the 
amount  of  their  notes  in  circulation  was  ^4,522,883, 
whilst  the  amount  of  their  deposites  was  ®6,81 3,503. 
On  the  1st  of  November,  of  the  same  year,  the  circu- 
lation of  the  Bank  of  the  United  States  (exclusive 
of  post  notes),  was  ®8,499,378,  and  the  deposites 
®8,591,235,  but  of  these  notes,  by  far  the  largest  pro- 
portion were  circulating  at  a distance  from  Philadel- 
phia, and,  consequently,  formed  no  part  of  the  cur- 
rency of  that  city. 

Having  thus,  as  I conceive,  established  the  propo- 
sitions laid  down  in  the  early  part  of  this  chapter,  I 
will,  in  the  next,  endeavor  to  elucidate  a matter  of 
very  great  practical  importance,  to  which  the  atten- 
tion of  congress  and  the  state  legislatures  has  never 
yet  been  particularly  directed,  relating  to  the  aggre- 
gate amount  of  the  currency  at  any  particular  period. 


188 


A TREATISE  ON 


CHAPTER  III. 

ON  THE  IMPORTANCE  OF  HAVING  UNIFORM  PERIODI- 
CAL  STATEMENTS  OF  THE  CONDITION  OF  THE 
CURRENCV, 

When  we  consider  the  importance  which  the  pre- 
sent*banking  system  of  the  United  States  is  capable 
of  exerting  over  the  property  and  industry,  and  com 
sequently  the  prosperity  of  the  country,  it  would 
seem  to  be  but  reasonable  that  the  public,  who  must 
always  be  the  victims  of  a vicious  course  of  policy, 
should  at  least  be  furnished  with  some  means  of  ac- 
quiring a knowledge  of  their  position,  in  order  that 
they  might  be  prepared  to  escape  from  a threatened 
catastrophe,  or  at  least  to  mitigate  its  force.  Such, 
however,  is  not  the  fortunate  condit-ion  of  the  people 
of  this  country,  and  they  seem  to  be  destined  to  be 
for  ever  deprived  of  all  opportunity  of  becoming  ac- 
quainted with  those  premonitory  indications,  which 
iisually  precede  a convulsion  in  the  money  concerns 
of  a nation.  The  truth  of  this  remark  will  occur  to 
most  people,  who  recollect  the  fact,  that  the  suspen- 
sion of  specie  payments  in  May,  1837,  came  upon 
the  country,  like  a sudden  clap  of  thunder  on  a clear 
day,  and  overwhelmed  every  body  with  surprise.  I 
say,  every  body,  for  the  exceptions  were  extremely 
rare,  of  those  who,  a month  before  it  occurred,  had 
the  slightest  apprehension  of  such  an  event. 

This  want  of  knowledge  arises,  from  the  circum- 
stance, that  the  nine  hundred  banks  and  branches  now 
operating  in  the  United  States,  are  the  offspring  of 
six  and  twenty  states,  three  territorial,  and  one  gene- 
ral government,  between  which  there  has  never 
been  any  system  of  uniform  action  in  relation  to  the 
terms  of  charters  of  banks,  or  in  reference  to  uniform 
periodical  returns  of  their  condition  as  to  liabilities. 


CURRENCY  AND  BANKING. 


189 


and  resources.  The  consequence  of  this  has  been, 
that  the  returns  of  the  condition  of  the  banks,  in  no 
two  states  perhaps,  correspond  as  to  dates,  or  to  par- 
ticulars, nor  do  even  the  different  banks  of  the  same 
state  always  correspond  in  the  latter.  In  some  there 
is  a studied  mystification  in  the  mode  of  stating  the 
account,  designed  to  render  it  unintelligible,  and 
which  nobody  but  the  president  or  cashier  of  the 
bank  could  explain;  whilst  in  others  there  is  a total 
disregard  of  particularisation,  by  placing  under  the 
general  heads  of miscellaneous,’^  other  liabilities,” 
other  investments,”  specie  funds,”  and  other  such 
terms,  many  important  elements  of  a statement,  with- 
out which  the  whole  document  is  deprived  of  its 
utility.  If  fair  play  with  the  public  and  honest  deal- 
ing were  the  objects  of  these  banks,  there  would  be 
no  need  for  such  subterfuges  and  concealments. 
Their  accounts  would  be  staled  with  fairness,  and 
every  facility  would  be  afforded  to  the  public  to  un- 
derstand the  true  condition  of  the  currency. 

It  is  from  such  imperfect, heterogeneous  and  fraud- 
ulent statements  as  those  we  have  described  that  the 
secretary  of  the  treasury  is  annually  called  upon  in 
January  to  furnish  to  congress  a voluminous  docu- 
ment, containing  abstracts  or  copies  of  the  same,  with 
such  condensed  tables,  as  the  arts  of  finance  and  divi- 
nation combined  will  enable  him  to  make  out.  The 
consequence  has  been,  that  all  those  tables  have  been 
deficient  in  the  important  element  of  uniformity  of 
dates,  without  which  statistical  exactness  is  impossible 

Thus,  for  instance,  in  his  Report  on  the  condition 
of  certain  banks,  &c,”  of  8th  January,  1838,  the  state- 
ments of  some  banks  are  only  made  up  to  the  month 
of  May,  1837,  which  could  throw  very  little  light  up- 
on the  condition  of  the  currency  in  the  month  of  No- 
vember of  the  same  year,  to  which  period  the  returns 
of  some  other  hanks  extend. 

But  this  want  of  uniformity  of  dates  is  not  the  only 
point  in  which  the  secretary’s  reports  are  necessarily 


190 


A TREATISE  ON 


deficient.  There  is  a want  of  that  specification  of 
debts  and  resources,  which  no  exertion  of  the  secretary 
can  remedy,  by  which  the  immediate  liabilities  of  the 
banks  can  be  distinguished  from  their  deferred  liabili- 
ties and  their  immediate  resources  from  their  deferred 
resources,  without  a knowledge  of  which,  as  we  have 
shown  in  the  preceding  chapter,  it  is  not  possible  to 
arrive  at  a true  knowledge  of  the  condition  of  the  cur- 
rency. It  is  fo  be  hoped  that  this  matter  will  attract 
the  attention  of  congress  and  the  state  legislatures,  and 
that  they  may  be  induced  to  unite  in  some  common 
system  of  action,  by  which  all  the  banks  of  the  country 
shall  be  required  to  make  quarterly  statements  of  their 
affairs  at  the  same  specified  dates,  and  upon  a plan 
uniform  and  simple,  that  no  one  who  is  acquainted  with 
a common  account  current  can  fail  to  understand 
them. 

But,  even  if  such  statements  as  are  here  recommend- 
ed, were  to  be  periodically  furnished,  it  would  require 
some  skill  in  accounts  to  present  their  aggregates  in 
such  a form,  as  would  show  the  true  extent  of  the  cur- 
rency. Those  who  have  examined  the  treasury  tables 
and  statements  must  have  perceived  that  the  mere  ad- 
ding together  of  the  deposites  and  circulation  of  all 
the  banks  would  not  give  the  true  amount  of  the  pa- 
per portion  of  the  currency.  A large  amount  of  the 
bank  notes  returned  by  the  different  banks  as  in  circu- 
lation, have  been  deposited, by  those  into  whose  hands 
they  passed,  in  other  banks  than  those  by  which  they 
were  issued,  and  consequently,  so  long  as  they  remain 
there,  they  appear  on  the  statements  of  those  banks 
as  deposites.  Thus,  if  a person  draw  out  from  the 
Bank  of  North  America  notes  of  that  bank  for  SlOOO, 
the  proceeds  of  a discounted  note,  the  accounts  of 
that  bank  would  show  an  increase  of  its  notes  in 
circulation  to  the  extent  of  ^1000.  If  the  same  notes 
were  then  immediately  deposited  in  the  Bank  of  Penn- 
sylvania, they  would  be  reported  by  that  bank  as  an 
increase  of  its  deposites  to  the  amount  of  ^1000.  In 


CURRENCY  AND  BANKING. 


191 


such  event,  it  is  evident  that  the  same  iglOOO  would 
appear  twice  as  swelling  the  currency  to  that  amount 
once  in  the  form  of  notes  in  circulation,  and  once  in 
the  form  of  deposites,  whereas  it  is  equally  evident 
that  the  currency  could  only  have  been  augment- 
ed one  single  ®1000.  It  follows,  from  this  view  of 
the  subject,  that  in  making  out  an  aggregate  statement 
of  the  circulation,  there  must  be  deducted  from  the 
aggregate  amount  of  the  notes  in  circulation,  the  total 
amount  of  notes  reported  in  the  different  bank  state- 
ments as  notes  of  other  banks  on  hand/’ 

It  may,  however,  be  said,  that  these  banks  did  not 
come  into  possession  of  these  notes  by  means  of  de- 
posites as  above  assumed,  but  that  they  were  ex- 
changed for  notes  of  their  own.  Granted,  but  this 
makes  no  difference  in  the  result.  The  banks  which 
received  them,  would  report  an  increase  of  their  own 
circulation  to  the  extent  of  iSlOOO,  and  if  the  notes 
of  other  banks  on  hand”  were  not  deducted,  there 
would  appear,  as  in  the  first  case,  a double  augmen- 
tation of  the  currency  to  the  extent  of  i^lOOO. 

But  it  may  be  further  said,  that  these  banks  did  not 
obtain  possession  of  these  notes  in  either  of  the  two 
modes  specified,  but  that  they  were  paid  to  them  in 
discharge  of  debts.  Is  the  nature  of  the  case  changed 
by  this  fact?  Not  at  all.  An  issue  of  bank  notes  to 
the  amount  of  ®1000,  can  not  "possibly  augment  the 
currency  to  the  amount  of  J?2000,  and  if  we  regard  the 
banking  system  as  one  whole,  just  as  if  it  consisted 
of  a principal  bank  and  branches,  we  can  easily  see, 
that  if  any  of  its  members  were  in  possession  of  any 
notes  issued  by  any  other  of  its  members,  they  would 
be  in  possession  of  itself.  It  would  have  been  absurd 
to  call  the  notes  of  the  late  Bank  of  the  United  States 
in  possession  of  the  New  York  branch,  notes  in  circu- 
lation, and  to  have  included  them  in  the  amount  of 
the  currency. 

So  also,  in  estimating  the  aggregate  amount  of  the 
currency,  must  the  amount  of  specie  in  possession  of 


192 


A TREATISE  ON 


all  the  banks  be  omitted  in  the  account,  seeing  that 
that  specie  having  been  derived  from  deposites,  or  in 
exchange  for  notes,  already  appears  on  the  return  of 
the  banks  in  one  of  those  two  forms. 

That  the  truth  of  these  positions  may  be  made 
manifest,  I will  make  a practical  application  of  them 
to  a table  found  in  the  report  of  the  secretary  of  the 
treasury  of  4th  January,  1837,  on  the  condition  of 
the  banks.  We  are  there  told,  in  document  A.  A., 
that  as  near  to  the  month  of  December,  1836,  as  could 
be  ascertained,  the  condition  of  all  the  banks  in  the 
United  States  was  as  follows: 


Resources. 


Loans  and  discounts,  - - - 

Stocks,  - - - - - 

Real  estate,  - - - - - 

Other  investments,  - 
Due  by  other  banks,  - - - 

Notes  of  other  banks  on  hand, 

Specie  funds,  - 

Specie,  - - . - 

- ^457,506,080 

11,709,319 
14,194,375 
9,975,226 
51,876,955 
32,115,138 
4,800,076 
40,019,594 

§622, 196,763 

Capital, 

Circulation, 

Dep:  oites. 

Due  to  other  banks, 
Other  liabilities, 

Liabilities. 

- §324,240,292 

140,301,038 
115,104,440 
50,402,369 
25,999,234 

§656,047,373 

As  the  account  does  not  balance,  it  is  probable 
that  some  of  the  resources  of  the  banks  have  been 
omitted. 

Now  from  this  statement  it  is  proposed  to  ascer- 
tain what  was  the  extent  of  the  currency  of  the  United 
States  at  the  period  mentioned,  in  addition  to  the 
amount  of  the  coin  in  the  pockets  and  strong  boxes 
of  the  public,  which  there  appears  to  be  no  correct 


CURRENCY  AND  BANKING. 


193 


means  of  ascertaining,  and  for  this  purpose,  I would 
state  the  account  as  follows. 

Circulation,  - - - - - @140,301,038 

Deposites, 115,104,440 

255,405,478 

Deducting  notes  of  other  banks  on  hand,  32,115,138 

Leaves,  @223,290,340 


Such  would  appear  to  be  the  actual  amount  of  the 
currency  as  furnished  by  the  above  table.  But  inas- 
much as  no  distinction  is  made,  between  notes  or 
deposites  payable  on  demand,  and  post  notes,  or 
deposites  payable  at  a future  period;  the  account  is 
deficient  in  a very  important  element  of  exactness. 
For  it  can  be  seen,  that  if  the  deferred  liabilities 
should  have  amounted  to  thirty  or  forty  millions  of 
dollars,  the  true  amount  of  the  currency  would  have 
been  diminished  precisely  to  that  extent. 

In  regard  to  the  two  amounts  expressed,  by  the 
terms  due  by  other  banks,^’  and  due  to  other 
banks,’^  standing  on  opposite  sides  of  the  account,  it 
must  be  obvious,  that  they  are  quantities  neutralising 
each  other,  for  the  amount  due  all  the  banks  to 
each  other,  must  be  precisely  equal  to  the  amount 
due  to  all  the  banks  by  each  other.  The  difference 
between  these  two  amounts  in  the  table  before  us, 
arises  no  doubt  from  the  fact,  that  owing  to  the 
distance  of  the  banks  from  one  another,  there  must 
always  be  on  the  route  between  them,  funds  m /ra?i- 
silu,  which  although  charged  by  the  remitting  bank 
to  the  account  of  the  one  to  which  they  were  remitted, 
cannot  have  yet  appeared  on  the  books  of  the  other 
as  a credit. 


17 


194 


A TREATISE  ON 


CHAPTER  IV. 

ON  THE  IMPOLICY  OF  ADHERING  TO  OUR  PRESENT 
MINT  PROPORTIONS  BETWEEN  GOLD  AND  SILVER. 

It  may  be  assumed  as  a principle  that  will  hardly 
be  disputed,  that  the  soundness  of  a mixed  currency 
of  coin  and  paper  such  as  we  are  likely  ever  to  have 
in  the  United  States,  does  not  depend  upon  the  fact 
whether  gold  or  silver  be  the  basis.  A currency  may 
be  quite  as  sound  where  silver  is  the  only  or  chief 
metal  that  circulates,  as  where  gold  is  the  only  or 
chief  metal.  This  is  evident  from  the  well  known 
fact,  that  the  currency  of  France  which  is  of  silver,  is 
not  more  liable  to  fluctuate  than  that  of  Great  Britain 
which  is  of  gold.  I might  even  argue  that  it  was  in 
point  of  fact  less  fluctuating,  but  as  all  I wish  to 
establish  is  equality,  it  is  not  necessary  that  I should 
take  that  ground. 

It  would  seem  that  the  great  object  of  our  act  of 
June,  1834,  was  to  establish  a gold  currency,  under 
the  belief  that  the  tendency  of  gold  to  drive  paper  out 
of  circulation  would  be  stronger  than  that  of  silver; 
and  on  that  account  the  mint  proportions  were 
changed  with  the  professed  object  of  drawing  gold 
into  the  country  in  preference  to  silver,  when  the 
course  of  trade  should  lead  to  the  importation  of  the 
precious  metals.  There  can  be  no  doubt,  that  had 
congress  possessed  the  right  of  prohibiting  the  circu- 
lation throughout  the  United  States  of  bank  notes  of 
a less  denomination  than  ten  dollars,  a gold  currency 
could  have  been  introduced  in  the  place  of  five  dollar 
notes;  but  as  it  possessed  no  such  power,  and  as 
there  was  not  the  slightest  probability  that  all  the 
state  legislatures  would  have  co-operated  in  bringing 
about  such  a result,  the  measure  was,  to  say  the  least 
of  it  premature. 

But  even  admitting  that  all  notes  of  a less  denomi- 


CURRENCY  AND  BANKING. 


195 


nation  than  ten  or  even  twenty  dollars  could  have 
been  proscribed,  I would  ask,  whether  such  a measure 
would  have  exempted  the  currency  from  all  liability 
to  fluctuations?  This  question  can  perhaps  best  be 
answered  by  referring  to  the  experience  of  Great  Bri- 
tain. In  that  country,  no  note  is  issuetl  by  the  Bank 
of  England,  or  by  any  joint-stock  or  private  bank,  of 
a less  denomination  than  five  pounds  sterling,  equal 
to  upwards  of  twenty-four  dollars^  and  yet  England 
has  been  subject  to  many  great  fluctuations  in  her  cur- 
rency, one  of  which,  that  of  1797,  brought  all  her 
banks  to  a stoppage  of  specie  payments;  and  another 
of  which  in  1825,  was  very  near  bringing  about  the 
same  result.  It  is  not  then  the  fact,  of  a mixed  cur- 
rency having  gold  or  silver  for  its  basis,  which  deter- 
mines its  stability.  Our  own  experience  of  forty-five 
years  out  of  fifty-one  since  the  establishment  of  the  go- 
vernment, during  the  whole  of  which  time  silver  was 
almost  the  exclusive  metal  that  circulated,  is  sufficient 
to  settle  that  question,  and  no  one,  it  is  presumed,  will 
maintain  the  proposition,  that  the  interests  of  the  great 
mass  of  the  people  are  not  as  well  promoted  by  the 
right  of  demanding  silver  for  a i)ank  note,  as  of  de- 
manding gold.  Indeed,  if  we  take  into  consideration 
the  universal  knowledge  which  prevails  as  to  silver 
coins,  the  familiarity  of  every  body  with  dollars  and 
half  dollars,  the  vast  number  of  persons  who  seldom 
have  five  dollars  in  money  on  hand  at  a time,  the  less 
liability  of  being  cheated  with  silver  than  with  gold, 
and  the  additional  fact  that  many  existing  ground 
rent  deeds,  bonds,  and  mortgages,  expressly  call  for 
payment  in  silver  dollars,  it  would  not  be  hazarding 
too  much  to  say,  that  silver  is  a more  convenient  coin 
for  the  people  of  the  United  States  than  gold.  If  then 
it  can  be  shown,  that  the  possession  of  a gold  currency 
in  preference  to  a silver  one,  would  be  not  only  pro- 
ductive of  no  positive  benefit  to  the  community,  but 
would  be  attended  with  positive  mischief  to  the  great 
interests  of  the  country,  all  parties  ought  to  unite  in 
abandoning  the  project. 


196 


A TREATISE  ON 


And  this  brings  me  to  the  point,  to  which  the  pre- 
ceding remarks  were  designed  to  be  introductory. 

Prior  to  the  passage  of  the  gold  bill  above  referred 
to,  the  metallic  currency  of  the  United  States  had  been 
virtually,  as  above  stated,  a currency  of  silver  since 
the  establishment  of  the  government,  gold  very  rarely 
appearing,  whilst  that  of  Great  Britain  was  of  gold. 
The  consequence  was,  that  the  currency  of  each  was 
independent  of  the  other,  and  the  contraction  or  ex- 
pansion of  each  did  not  necessarily  act  upon  the 
other.  The  contraction  in  England,  which  preceded 
the  resumption  of  specie  payments,  in  1821,  after  a 
long  suspension  of  twenty-four  years,  produced  no  con- 
vulsion on  this  side  of  the  Atlantic;  nor  did  our  con- 
traction, distressing  and  durable  as  it  was,  after  the 
removal  of  the  public  deposites  from  the  Bank  of  the 
United  States,  on  the  1st  of  October,  1833,  which 
brought  down  the  prices  of  stocks  from  20  to  50  per 
cent.,  and  led  to  the  importation  of  3,793,  293  dollars 
in  silver  from  England  alone,  during  the  year  end- 
ing on  30th  September,  1834,  produce  any  convul- 
sion whatever  in  that  country.*  Such  would  have 

* During  the  contraction  last  referred  to,  which  occasioned  a 
panic  that  continued  from  October,  1833,  to  July,  1834,  ex- 
change upon  London,  at  New  York,  the  market  of  which  regu- 
lates the  rate  for  all  the  other  cities,  fell  greatly  below  the  or- 
dinary limits.  In  February,  1834,  the  pressure  for  money  was 
so  great,  that  bills  were  sold,  for  a short  period,  as  low  as  one  to 
two  per  cent,  below  the  nominal  par  of  that  period,  which  was, 
in  reality,  nine  to  ten  per  cent,  below  the  true  par.  A great  fall, 
also,  took  place  in  every  species  of  stocks,  property  and  mer- 
chandise, whilst  the  discount  on  good  commercial  paper  rose  to 
two  or  three  per  cent,  a month. 

Notwithstanding  this  great  pressure,  however,  it  was  not  felt 
at  all  in  England,  except,  perhaps,  in  the  diminished  remittan- 
ces of  merchants,  so  that  her  currency  remained  not  only  with- 
out the  slightest  contraction,  but  actually  experienced  an  aug- 
mentation,! to  the  great  advantage  of  our  shippers,  whose  cotton 

t Aggregvate  amount  of  notes  circulated  in  England  and  Wales,  by 
the  Bank  of  England,  by  private  banks,  and  by  joint  stock  banks  and 
their  branches,  at  the  following  dates,  as  published  in  a table  appen- 


CURRENCY  AND  BANKING. 


197 


continued  to  be  the  case,  had  the  mint  regulations 
remained  without  alteration;  but  no  sooner  was 
gold,  by  a change  in  its  relative  value  to  silver,  ren- 
dered the  most  profitable  of  the  two  metals  to  import, 
than  we  found  the  currency  of  England  disturbed  to  a 
degree  that  rendered  necessary  an  immediate  reduc- 
tion of  her  paper  issues,  although  the  amount  of  gold 
drawn  from  her  between  the  passage  of  the  law  in 
June,  1834,  and  the  30th  of  September,  of  the  same 
year,  was  but  1,922,960  dollars.  To  the  importations 
of  gold  in  the  years  1835  and  1836,  instead  of  silver, 
may  be  ascribed  that  further  contraction  of  the  British 
currency,  which  led  to  the  crisis  of  the  latter  year, 
that  was  so  fatal  to  American  credits  and  American 
cotton,  by  which  millions  of  dollars  were  lost  to  the 
country. 

Now  as  like  causes  will  produce  like  effects,  it  be- 
hoves us  to  examine  well^  into  this  matter,  and  if  we 
find  that  we  have  commilted  an  error,  it  is  our  duty 
to  retrace  our  steps.  Thus  far  very  little  progress  has 
been  made  towards  introducing  gold  into  actual  circu- 
lation, notwithstanding  that  a large  amount  has  been 

was  sold  without  any  redaction  in  price,  as  will  be  evident  from 
the  following  quotations  for  uplands  of  the  best  quality,  contained 
in  letters  from  Liverpool  houses  of  the  greatest  respectability. 

1833. 


October  30, 

. 9d 

March 

22,  . 

. 9d 

November  23, 

- n 

April 

23,  - 

- 9d 

December  7, 

- 8| 

May 

16,  - 

- 9| 

December  31, 

- 

June 

7,  - 

- 9i 

1834. 

July 

8,  - 

- 9i 

January  4, 

- 91 

August 

23,  - 

- 91 

February  24, 

- 9^ 

September  30,  - 

- 9| 

ded  to  the  report  of  the  Secretary  of  the  Treasury  of  3d  January, 
1837,  on  the  condition  of  the  state  banks. 

1833,  December  28,  £27,621,104 

1834,  March  29,  28,735,827 

“ June  28,  29,207,682 

“ September  27,  28,591,112 

“ December  28,  27,729,828 

17^ 


198 


A TREATISE  ON 


imported,^  still  a long  perseverance  in  the  law  will 
give  us  a gold  currency,  but  it  will  be  most  dearly 
purchased.  It  will  so  closely  ally  our  fortunes  with 
those  of  Great  Brittian,  that  no  convulsion  can  take 


* Tables  of  the  imports  and  exports  of  gold  and  silver  coin  and 
bullion,  for  the  last  five  years. 


1834, 

1835, 

1836, 

1837, 

1838, 

I.  GOLD 

BULLION. 

Imports, 

gl41,181 

665,457 

1,913,137 

536,549 

230,392 

Exports, 

none. 

none. 

g25,777 

101,563 

none. 

g3, 486, 716 

^127,340 

Total  imports  of  gold  bullion 
Do.  exports  do. 

J 

- g3, 486, 716 
127,340 

Excess  of  imports. 

- 

- ^3,359,376 

1834, 

1835, 

1836, 

1837, 

1838, 

II.  GOLD  COIN. 

Imports, 

- 786, 006 
1,669,730 
5,318,725 
1,895,265 

- 11,431,840 

Exports. 

g64,349 

625,679 

275,940 

1,828,653 

736,264 

g23,101, 566 

^3,530,885 

Total  imports  of  gold  coin. 
Do.  exports  do. 

- 

g23,l  01,566 
3,530,885 

Excess  of  imports,  - 

- 

^19,570,681 

1834, 

1835, 

1836, 

1837, 

1838, 

III.  SILVER  BULLION. 

Imports, 

^168,330 

765,283 

318,350 

594,291 

392,843 

Exports. 

none. 

none. 

f52,695 

5,600 

2,500 

^2,239,097 

S60,795 

CURRENCY  AND  BANKING. 


199 


place  in  the  currency  of  that  country,  that  will  not  act 
directly  and  powerfully  upon  ours;  whilst  on  the  other 
hand,  none  can  take  place  on  our  side,  that  will  not 
act  directly  upon  hers,  and  in  so  doing,  break  down 
the  prices  of  cotton  and  tobacco,  and  other  A merican 
products  in  the  markets  of  Europe  to  the  great  injury 
of  our  planting  interest. 

But  this  is  not  all.  The  tendency  of  the  present 
regulation  is  to  drive  silver  out  of  the  country,  and 
pot  gold,  in  all  cases  where  coin  is  exported,  the  result 
of  which  will  be,  if  long  enough  persevered  in,  to 
deprive  us  almost  altogether  of  a silver  currency,  and 
in  that  event,  a universal  resort  will  be  had  in  all  the 
states  to  bank  notes  of  the  smallest  denominations  in 
preference  to  gold  coins  of  similar  denominations,  as 
a remedy  for  the  evil,  a remedy,  which,  it  is  hoped,  no 
friend  of  a sound  currency  desires  to  see  adopted. 

Total  imports  of  silver  bullion,  - - ^2,239, 097 

Do.  exports  do.  ...  60,795 

Excess  of  imports,  - - - - g2, 178,302 


1834, 

1835, 

1836, 

1837, 

1838, 


IV.  SILVER  COIN. 

Imports. 

- g3, 246, 000 

- 10,040,000 

5,850,669 

4,490,309 

5,630,138 


Exports. 

g413,681 

5,122,495 

3,624,186 

2,756,914 

2,292,342 


^29,257,1 16 


gl4,209,618 


Total  imports  of  silver  coin. 
Do.  exports  of  do. 


- g29,257,116 

14,209,618 


Excess  of  imports. 


15,047,498 


RECAPITULATION. 
Gain  on  gold  bullion. 

Do.  do.  coin,  - 
Do.  silver  bullion, 

Do.  do.  coin, 


g3,359,376 

19,570,681 

2,178,302 

15,047,498 


200 


A TREATISE  ON 


If  there  be  any  fallacy  in  this  reasoning,  it  is  not 
intentionally  advanced.  The  subject  is  a grave  and 
important  one,  and  merits  the  attention  of  all  who  are 
desirous  to  keep  our  country  free  from  foreign  alli- 
ances, whether  they  be  pecuniary  or  political;  and 
should  congress  be  convinced  that  a false  step  has  been 
made,  let  that  step  be  retraced.  Let  the  standard  of 
the  gold  coin  be  restored  to  its  former  high  grade,  cor- 
responding with  those  of  Great  Britain,  Portugal  and 
Brazil,  that  is,  eleven  parts  of  pure  gold  to  one  part 
of  alloy,  and  let  there  be  no  coins  struck  at  the  mint 
but  ounces,  half  ounces,  and  quarter  ounces,  without 
any  fixed  legal  proportions  to  silver,  but  leftto  find  their 
way  into  circulation  at  their  fair  market  equivalency,  as 
gold  coins  do  in  France  and  other  countries  of  Europe. 
By  having  coins  of  familiar  and  well  known  weights 
the  people  would  form  right  conceptions  of  the  true 
nature  of  money;  and  as  the  bullion  dealers  and  bro- 
kers in  all  the  cities  would  quote  the  price  of  ounces 
of  gold  as  they  do  of  sovereigns,  they  would  be  at  all 
times  current  at  their  market  value,  and  could  never 
be  driven  from  the  country  by  our  own  legislation, 
or  that  of  other  states. 


CHAPTER  V. 

ON  THE  SUPERIORITY  OF  THE  NEW  YORK  GENERAL 
BANKING  LAW  OVER  THE  PRESENT  BANKING 
SYSTEM. 

Having,  in  a former  chapter,  promised  to  give  my 
reasons  for  believing  the  principles  of  the  New  York 
banking  law  to  be  better  calculated,  if  made  general 
throughout  the  Union,  to  give  stability  to  the  currency 
than  any  other  that  would  be  likely  to  meet  a general 


CURRENCY  AND  BANKING. 


201 


acceptance,  I now  proceed  to  fulfil  that  promise,  and 
shall  first  give  the  reader  a synopsis  of  its  principal 
stipulations. 

This  law  provides  that  the  comptroller  of  the  state 
shall  cause  to  be  printed  from  uniform  plates,  to  be 
engraved  according  to  his  direction,  bank  notes  of  the 
various  denominations  authorised  by  law,  which  notes 
are  to  be  countersigned,  numbered,  and  registered  in 
his  office,  in  books  provided  for  the  purpose.  These 
notes  are  to  be  delivered  to  every  banking  association 
organised  under  the  provisions  of  this  act,  which  shall 
transfer  to  the  comptroller  any  of  the  public  debt  of 
the  United  States,  or  of  any  state,  that  shall  be  appro- 
ved by  the  comptroller,  not  less  in  amount  than  ®100, 
000  and  made  equivalent  in  value  to  a New  York 
State  five  per  cent,  debt  in  sums  precisely  equal  to  the 
amount  transferred,  hereby  establishing  the  important 
and  valuable  principle  of  free  trade  in  banking;  and 
when  signed  and  executed  by  the  respective  associa- 
tions, they  become,  to  all  intents  and  purposes,  bank 
notes,  and  as  such  may  be  loaned  and  circulated  as 
money. 

In  cases,  however,  where  the  association  requiring 
the  notes  prefers  to  give  mortgages,  bearing  six  per 
cent,  interest,  upon  improved,  productive,  unincum- 
bered lands  within  the  state  of  New  York,  worth,  in- 
dependent of  any  buildings  thereon,  at  least  double 
the  amount  for  which  they  shall  be  so  mortgaged,’^ 
for  one  half  of  the  amount  of  the  notes,  the  comptroller 
is  authorised  to  accept  the  same  in  lieu  of  stocks,  and 
in  both  cases  the  depositing  party  is  to  be  authorised 
to  receive  the  accruing  interest. 

The  notes  thus  created  upon  an  actual  deposite  of 
property  of  equal  amount,  are  to  be  payable  on  de- 
mand in  the  lawful  money  of  the  United  States,  and 
in  case  of  default  of  such  payment,  except  for  legal 
cause,  for  the  space  of  ten  days  after  the  comptroller 
shall  have  demanded  payment  in  consequence  of 
having  been  apprised  of  the  fact,  by  the  protest  of  a 


202 


A TREATISE  ON 


notary,  he  shall  proceed  to  sell,  at  public  auction,  the 
stocks  and  mortgages  pledged  in  his  hands,  and  with 
the  proceeds  pay  the  notes  of  the  defaulting  bank. 
Protested  notes  are  to  entitle  the  holder  to  damages 
at  the  rate  of  fourteen  per  cent,  per  annum  until  paid. 

The  associations  authorised  by  this  act,  are  empow- 
dered  to  carry  on  the  business  of  banking  by  dis- 
counting bills,  notes,  and  other  evidences  of  debt,  by 
receiving  deposites,  by  buying  and  selling  gold  and 
silver  bullion,  foreign  coins  and  bills  of  exchange  in 
the  manner  specified  in  their  articles  of  association, 
for  the  purpose  authorised  by  this  act;  by  loaning 
money  on  real  and  personal  security;  and  by  exerci- 
sing such  incidental  powers  as  shall  be  necessary  to 
carry  on  such  business.’^  The  shares  of  the  stock 
are  to  be  deemed  personal  property,  and  are  to  be 
transferable,  like  shares  in  other  banks,  carrying  with 
them  all  the  rights  and  liabilities  of  prior  shareholders, 
and  any  association  may  provide  in  their  articles  for 
an  increase  of  their  capital,  from  time  to  time,  as  they 
may  think  proper.  * No  shareholder  is  liable  in  his 
individual  capacity  for  any  contract,  debt  or  engage- 

* This  power  to  increase  the  capital  of  a bank  to  any  amount 
that  may  be  agreed  upon  in  the  articles  of  association,  is,  I con- 
ceive, a defect  in  the  law.  We  see  every  year  banks  applying 
to  the  legislatures  to  authorise  an  increase  of  their  capitals,  not 
because  they  can  profitably  employ  more  capital,  but  as  a mere 
expedient  to  relieve  themselves  from  embarrassments,  by  per- 
mitting their  creditors,  that  is,  the  holders  of  their  notes  and  de- 
posites, to  come  into  the  concern  as  co-partners.  It  appears  to 
me  that  just  in  the  degree  that  there  exists  a standing  law  to 
authorise  such  a mode  of  relief,  will  there  be  a tendency  to  the 
expansion  of  the  currency,  and  a facility  afforded  for  bolstering 
up,  too  long,  insolvent  borrowers,  the  effect  of  which  is  to  pre- 
vent matters  from  settling  down  upon  the  solid  foundation  which 
the  interests  of  the  community  demand,  precisely  as  there  would 
be,  if  the  law  authorised  the  issue  of  post  notes,  which  very 
properly  it  does  not.  This  view  of  the  subject  is  earnestly 
recommended  to  the  consideration  of  the  legislatures  of  the  diffe- 
rent states,  which  may,  as  that  of  Georgia  has  already  done, 
adopt  the  New  York  system. 


CURRENCY  AND  BANKING. 


203 


ment  of  the  association,  unless  the  articles  of  associa- 
tion shall  have  declared  that  the  shareholder  shall  be 
liable. 

From  this  abstract  of  the  law,  it  will  appear,  that 
the  security  of  noteholders  is  alone  provided  for,  and 
that  no  provision  is  made  for  the  protection  of  the 
depositors,  who  are  left  as  in  other  banks,  in  case  of  a 
failure,  on  the  footing  of  common  creditors.  This 
distinction  is  founded  upon  the  soundest  principles  of 
policy.  Bank  notes  invested  with  the  character  of 
money,  from  the  very  nature  of  the  use  they  are  de- 
signed to  perform,  must  necessarily  pass  from  hand 
to  hand  in  the  transactions  of  business,  with  a rapi- 
dity and  universality,  which  preclude  the  possibility 
of  a close  inquiry  into  the  responsibility  of  the  draw- 
ers; and  there  is  therefore  as  good  a reason  why  the 
public  should  be  protected  against  loss  from  the  circu- 
lation of  paper  money,  as  why  they  should  be  pro- 
tected against  loss  from  the  circulation  of  metallic 
money,  which  is  the  design  of  establishing  and  main- 
taining a mint  at  the  public  expense.  ^ The  case  how- 
ever is  widely  different  with  depositors.  The  indi- 

* In  this  position  the  author  is  sustained  by  the  opinion  of 
Mr.  McCulloch,  whose  celebrity  as  a political  Economist,  is 
well  known  throughout  the  United  States,  as  employed  in  the 
following  passages. 

“ It  is  quite  illusory  to  expect  to  make  any  real  improvement 
upon  the  system  of  country  banking  in  England,  by  the  mere 
introduction  of  a pla*n  for  allowing  banking  establishments  with 
large  capitals  to  be  set  on  foot.  There  have  always  been,  and 
are  at  this  moment,  a great  number  of  such  establishments  in 
England.  What  is  really  wanted,  is  the  adoption  of  a system, 
that  will  exclude  the  possibility  of  notes  being  discredited,  hypre- 
venting all  individuals  or  associations  from  issuing  such  as  have 
not  been  guaranteed.  * * * * “ The  truth  is,  as  already  stated, 

that  it  is  not  possible  to  guard  against  loss  and  fraud,  from  the 
proceedings  of  the  country  bankers,  otherwise,  than  by  compel- 
ling them  to  give  security  for  their  zssues.”  * * * The  truth 
can  not  be  too  often  repeated,  that  it  is  quite  impossible  ever  to 
organise  secure  banks  of  issue — and  it  is  with  such  only  that 
the  legislature  has  any  right  to  interfere,  except  by  obliging  them 
to  give  security  for  their  notes.  Every  other  scheme,  how  care- 


204 


A TREATISE  ON 


viduals  who  make  deposites  in  a bank,  are  at  all  times 
in  a situation  to  judge  of  the  responsibility  of  the  par- 
ties to  whose  custody  they  commit  their  funds,  and 
there  is  no  more  reason  why  a special  law  should  be 
enacted  to  protect  them  against  loss,  than  that  one 
should  be  enacted  to  protect  any  other  class  of  per- 

fully  soever  it  may  be  devised,  is  sure  in  the  end  to  prove  nuga- 
tory and  to  be  defeated.”  McCulloch'' s Commercial  Dictionary 
edition  of  1834,  pp.  76,  77,  1 10. 

“ There  is,  in  fact,  but  one  measure  that  can  give  the  public 
that  guarantee  to  which  they  are  entitled  in  dealing  with  coun- 
try banks,  and  that  is  to  compel  them  to  give  security  for  their 
issues.  Nothing  short  of  this  will  do.  Women,  minors,  and  in- 
dividuals of  all  descriptions,  who  from  their  situation  in  life  are 
no  wise  qualified  to  judge  of  the  stability  of  different  banking 
companies,  are  dealers  in  money;  and,  in  point  of  fact,  it  is 
found,  that  the  notes  of  the  most  worthless  banks  always, 
obtain  some  circulation,  and  generally,  indeed,  find  their  way 
into  the  pockets  of  those  who  are  least  able  to  bear  the  loss 
when  the  fraud  is  discovered.  Government  is  bound  to  interfere 
to  protect  its  subjects  from  such  losses,  and  to  make  sure  that  all 
notes  intended  to  serve  as  money,  be  they  issued  by  one  indi- 
vidual or  by  many,  shall  be  paid  when  presented,'^''  McCulloclds 
Statistical  account  of  the  British  Empire,  vol.  II.  p.  169,  writ- 
ten in  1837. 

The  late  Isaac  Bronson,  Esq.  of  New  York,  whose  skill  as  a 
banker  was  exceeded  by  that  of  no  financier  in  this  country,  en- 
tertained the  same  opinion,  as  appears  from  an  article  written  by 
him  in  the  year  1829,  and  published  in  the  Free  Trade  Advo- 
cate of  July  11th  of  that  year,  in  which  he  employed  the  fol- 
lowing language. 

“ It  will  be  seen  from  the  foregoing  premises,  that  the  propo- 
sition which  the  banker  makes,  or,  is  supposed  to  make,  to  the 
public  (on  issuing  his  bank  notes)  when  stripped  of  its  mystery, 
is  simply  this:  ‘ I will  exchange  my  credit  for  your  capital,  but 
you  must  allow  me  the  use  of  your  capital  without  interest,  and 
yet  pay  me  interest  for  the  use  of  my  credit.  My  credit  will  be 
of  the  same  use  to  you  as  your  money,  and  much  more  conve- 
nient; and  your  money,  while  in  my  hands  I can  make  produc- 
tive, which  w'ould  produce  nothing  if  it  remained  in  yours: 
whenever  you  prefer  your  money  to  my  credit,  you  shall  have  it. 

“ To  this  proposition  the  public  replies;  ‘ You  shall  have  the 
use  of  my  money  on  the  terms  you  propose;  hut  in  a bargain  so 
advantageous  to  yourself,  it  will  be  expected,  as  you  have  my 
money  without  interest,  that  you  will  give  security  to  return  it 
without  loss,’*  ” 


CURRENCY  AND  BANKING.  205 

sons  who  find  their  account  in  trusting  others  with 
their  property. 

But,  although  this  be  true  as  regards  depositors, 
they  have  this  advantage  over  the  depositors  under 
the  old  system,  that  the  bank  must  either  pay  them 
in  coin  or  in  notes  which  represent  actual  capital  and 
not  credit;  and  it  is  this  feature  in  the  system  which 
gives  it  its  chief  superiority  over  the  other. 

In  a former  part  of  this  work,  I drew  a distinction 
between  the  influence  which  deposites  exercise  over 
the  currency  when  made  in  a bank  of  discount,  and 
jvhen  made  in  a bank  of  circulation.  ^ I stated,  that 
in  the  case  of  a bank  of  discount,  where  the  money 
was  loaned  to  other  people,  and  where  the  depositor 
also  reserved  his  right  of  demanding  payment  at  his 
pleasure,  the  currency  could  not  be  augmented,  owing 
to  the  fact,  that  the  banker,  in  order  to  pay  the  depo- 
site,  would  necessarily  be  obliged  to  make  some  of  his 
debtors  simultaneously  pay  up  an  equal  sum,  that 
he  might  keep  his  usual  stock  of  money  on  hand;  so 
that  as  fast  as  he  enlarged  the  circulation  by  pay- 
ments from  his  counter,  he  contracted  it  by  drawing 
in  an  equal  amount  from  other  quarters,  thus  leaving 
the  money  out  of  doors  precisely  the  same  in  amount 
as  before.  I stated,  on  the  other  hand,  that  the  ope- 
ration with  a bank  of  circulation  was  different,  owing 
to  the  fact,  that  such  a bank,  on  being  called  upon  by 
a depositor  whose  money  had  been  loaned  out,  was 
not  necessarily  obliged  to  call  in  a corresponding 
amount  from  a debtor,  but  might  be  able  to  satisfy 
the  depositor  with  its  own  notes,  by  which  means  the 
money  out  of  doors  would  be  temporarily  increased  to 
the  extent  of  these  notes,  and  thus  create  a corre- 
sponding excess. 

Now,  as  the  New  York  law  absolutely  prohibits 
the  issue  of  any  other  notes  than  those  which  repre- 
sent capital,  and  as  these  can  not  be  multiplied  ad  in- 

* Book  II,  Chap.  1. 

18 


206 


A TREATISE  ON,  &c- 


Jinitum^  as  notes  can  be  comparatively  under  the  old 
system,  it  is  manifest  that  the  banks  organised  under 
it,  have  not  the  power  to  augment  the  currency  to  the 
extent  that  the  others  have,  inasmuch  as,  like  banks 
of  discount,  they  can  only  meet  the  claims  of  depo- 
sitors by  compelling  some  of  their  debtors  to  pay  up 
a corresponding  amount,  it  being  understood,  as  in 
the  case  of  those  banks,  that  the  usual  stock  of  money 
is  always  to  be  kept  on  hand  to  meet  occasional  or  un- 
expected demands.  ^ 

In  reference  to  the  other  provisions  of  the  law,  they 
must  speak  for  themselves.!  If  the  numerous  banks 
that  have  been  organised  under  it,  and  which  are 
daily  increasing  in  number,  act  wisely,  they  will 
invest  nearly  the  whole  of  their  capitals  in  fixed 
securities!  and  will  be  careful  not  to  force  into 
circulation  a larger  amount  of  their  notes  than  the 
currency  can  readily  bear  without  reaction.  They 
will  also  take  especial  care,  that  in  lending  the  money 
of  depositors,  they  wilt  discount  nothing  but  business 
paper,  having  a short  time  to  run,  or  they  may,  if 
overtaken  by  a panic,  find  themselves  in  the  hands  of 
the  comptroller  before  they  are  aware  of  it.§ 

* A clear  illustration  of  the  difference  here  adverted  to,  is  con- 
tained in  an  unpublished  pamphlet  on  the  reform  of  the  cur- 
rency of  England,  which  the  author  has  read,  in  the  following 
paragraph: 

“ The  business  of  banking  is  one  thing;  that  of  issuing  a 
paper  money  is  another  thing.  There  is  no  necessary  connec- 
tion between  the  two.  The  bankers  in  London  and  Paris  are 
bankers  strictly  so  called.  They  are  lenders  of  their  own  and 
of  other  people’s  money.  They  must  obtain  it  by  industry  or 
loan  before  they  can  lend  it.  They  do  not  make  it.  The  busi- 
ness of  making  and  then  issuing  a paper  money  on  loan,  is  very 
different  from  that  of  obtaining  a paper  money  on  loan,  and  then 
re-lending  it.” 

t A copy  will  be  found  in  the  Appendix,  marked  D. 

! The  whole  of  the  capital  of  the  Bank  of  England  is  invested 
in  a loan  to  the  government,  and  no  part  of  it  ever  appears  in 
the  monthly  statements  of  the  assets  and  liabilities  of  the  bank. 

§ For  an  account  of  the  practical  working  of  this  system,  see 
Appendix  J. 


APPENDIX 


A. 


ON  THE  RELATIVE  VALUE  OP  GOLD  AND  SILVER. 

From  the  National  Gazette^  of  January  1822. 

Messrs.  Editors: — In  the  autumn  of  the  year  182Q, 
an  article  written  by  me  was  published  in  your  Ga- 
zette, explaining  the  cause  of  the  disappearance  of 
gold  from  the  United  States,  It  was  there  shown 
that,  in  spite  of  all  the  attempts  made  by  the  laws  of 
various  nations,  to  establish  fixed  proportions  be- 
tween gold  and  silver,  those  two  metals  had  con- 
firmed their  right  to  be  governed  by  the  same  laws 
of  supply  and  demand^  which  regulate  the  relative 
value  of  all  other  commodities,  and  had  actually  in 
the  market  of  the  trading  world  assumed  proportions 
different  from  those  which  had  for  many  previous 
years  been  maintained.  It  was  also  shown,  that  one 
ounce  of  gold  was  at  that  time  worth  in  Europe  near 
sixteen  ounces  of  silver^  and  that  so  long  as  the  laws 
of  the  United  States  decreed  that  the  proportions 
should  be  as  one  to  fifteen^  gold  would  not  circulate, 
but  would  be  exported  from  the  country,  in  payment 
of  debts,  or  in  exchange  for  silver.  The  truth  of  that 
assertion  has  been  verified;  for  although  during  the 


208 


APPENDIX. 


year  1820,  gold  was  coined  at  our  mint  to  the  value 
of  01,319,030,  and  during  the  year  1821,  to  the 
amount  of  0185,325,  yet  not  a gold  coin  is  any  where 
to  be  seen  in  circulation. 

During  the  last  session  of  congress,  this  subject  of 
the  disappearance  of  gold  was  considered  by  a com- 
mittee, who  made  a report,  recommending  an  alter- 
ation of  the  legal  proportions,  so  as  to  make  them 
correspond  with  the  proportions  which  were  at  that 
time  supposed  to  exist  in  Europe.  At  the  present 
session,  the  same  matter  will  probably  come  before 
the  committee,  to  whom  the  subject  of  the  coinage  has 
been  referred;  and  as  it  is  an  important  one,  a few 
observations  in  relation  to  it  may  not  at  this  time  be 
inappropriate. 

Any  attempt  to  fix  by  law^  what  cannot  be  fixed 
by  nature^  carries  on  its  face  an  air  of  absurdity. 
Without  animadverting  upon  the  policy  which  led 
our  predecessors  to  follow  the  footsteps  of  many  of 
the  European  nations,  and  which  may  perhaps  be 
justified  by  the  then  existing  state  of  the  country,  it 
is  certainly  not  the  part  of  wisdom  to  pursue  a course, 
which  the  lights  of  science  and  experience  so  clearly 
prove  to  be  unsound.  The  very  fact  that  gold  and 
silver  have  departed  from  the  proportions  established 
by  our  laws,  is  ample  proof  that  no  such  laws  should 
ever  have  been  enacted;  and  the  certainty  of  a future 
change,  is  equally  conclusive  against  any  further 
legislation  on  the  subject.  Even  since  the  date  of  the 
report  of  the  committee  above  referred  to,  a more  wide 
separation  between  the  two  metals  has  taken  place; 
and  had  a law  been  enacted  a year  ago,  agreeably  to 
their  suggestion,  it  might  possibly  have  required  an 
additional  one  in  the  present  year  to  give  it  effect. 
The  truth  is,  that  until  the  physical  and  moral  causes, 
which  operate  upon  a currency,  shall  combine  to 
establish  an  immutable  relation  between  gold  and 
silver,  laws  to  determine  their  relative  value  can  be 
nothing  more  than  temporary  expedients,  at  war  with 


APPENDIX. 


209 


the  true  interests  of  the  country,  and  the  genuine 
principles  of  political  economy.  No  nation  ought  to 
attempt  to  create  two  legal  tenders;  and  as  we  have 
virtually^  at  least  for  a time,  got  rid  of  one  of  them, 
we  ought  not  to  be  hasty  in  restoring  it. 

In  a discussion  upon  this  subject,  it  is  not  essential 
to  consider  the  question,  whether  a gold  or  silver 
coinage  is  to  be  preferred.  Many  weighty  arguments 
might  be  advanced  in  favor  of  each,  but  as  the  Ame- 
rican people  are  best  acquainted  with  silver,  and  as 
most  ancient  contracts  stipulate  for  the  payment  of 
silver  coins,  there  would  seem  to  be  a propriety  in 
adhering  to  that  metal;  especially,  too,  as  the  uni- 
versal establishment  of  banks  of  deposite,  obviate 
almost  entirely  the  expense  and  inconvenience  of 
transporting  and  counting  large  sums.  I take  it  for 
granted,  that  if  one  metal  was  alone  declared  to  be  a 
legal  tender,  that  metal  would  be  silver;  and  under 
that  impression,  I submit  my  remarks. 

The  first  objection  against  an  alteration  of  the  rela- 
tive legal  value  of  gold  and  silver,  is  that  there  would 
be  no  certainty  of  the  new  proportions  being  main- 
tained for  any  length  of  time  in  the  general  market. — 
Gold  might  rise,  still  higher,  and  in  that  event  the  law 
would  be  of  no  avail.  Or  gold,  might  fall^  and  in  that 
case,  the  silver  would  all  be  exported  from  the  coun- 
try, upon  the  principle  that  gold  now  is,  as  being  the 
dearest  of  two  commodities,  which  are  declared  by 
law  to  be  equally  legal  tenders  in  discharge  of  the 
same  debt.  In  case  of  such  an  event  as  the  exporta- 
tion of  all  our  silver,  it  is  easy  to  foresee  what  evil 
consequences  would  result.  Gold  would  become  the 
only  circulating  medium,  and  as  it  is  impossible  that 
the  ordinary  transactions  of  life  could  be  carried  on 
with  such  small  pieces  of  gold  as  would  correspond 
with  our  small  silver  coins,  congress  would  be  com- 
pelled to  pass  another  law  to  bring  silver  back,  and 
there  wonld  be  no  end  to  our  legislation  on  the  sub- 
ject. If  silver  should  be  legislated  out  of  the  country, 
18^ 


210 


APPENDIX. 


and  afterwards  be  legislated  back  again,  the  nation 
would  lose  the  whole  value  of  the  expense  and  risk 
of  a double  transportation,  without  an  equivalent  in 
return. 

The  second  objection  against  this  measure  is,  that 
it  would  be  an  improper  interference  with  the  rights 
of  all  creditors,  public  as  well  as  private,  in  relation  to 
contracts,  existing  at  the  time  of  the  change.  By  the 
present  laws,  an  individual  or  the  nation  has  its  op- 
tion, in  discharge  of  a debt,  to  pay  one  ounce  of  gold 
or  fifteen  ounces  of  silver;  but  if  the  proportions 
were  altered  as  proposed,  creditors  could  be  compelled 
to  receive  in  satisfaction  of  their  claims,  a less  quan- 
tity of  gold  than  they  stipulated  for.  It  is  true,  that 
no  absolute  injury  would  be  sustained  by  creditors,  so 
long  as  the  new  proportions  should  be  maintained  in 
the  market,  because  with  the  new  quantity  of  gold 
they  could  purchase  as  much  silver,  as  the  debtor 
had  contracted  at  his  option  to  pay.  But  the  case 
would  be  widely  diflerent  in  the  event  of  a falling 
back  in  the  market  to  the  present  proportions.  All 
debts  would  then  be  paid  in  gold,  and  creditors  would 
be  compelled  to  take  in  discharge  of  their  contracts, 
a less  quantity  of  gold  than  they  had  bargained  for. 

Whether  or  not  congress  possesses  the  power  of 
enacting  laws  which  shall  thus  impair  the  obligation 
of  contracts,  it  is  not  necessary  here  to  inquire.  Be 
that  as  it  may;  it  is  a matter  of  deep  concern,  to  the 
people  of  this  republic,  that  their  representatives 
should  cautiously  shun  every  measure,  w^hich  has  a 
tendency  to  countenance  those  frauds  upon  creditors 
which  some  European  nations  have  practised,  by  de- 
basing their  coins,  or  by  diminishing  their  weight 
without  altering  the  denomination.  The  pound  ster- 
ling was  originally  a pound  of  standard  silver^ 
which  was  coined  into  twenty  equal  pieces  called 
shillings.  The  same  quantity  of  silver  is  now  coined 
into  sixty-six  shillings,  twenty  of  which  are  a pound 
sterling.  The  livre  of  France,  now  worth  less  than 


APPENDIX. 


211 


nineteen  cents,  originally  was  a pound  of  silver  of  the 
French  standard,  which  is  nine-tenths  pure  metal  and 
one-tenth  alloy.  Let  it  never  be  said,  that  the  Jimt’- 
rican  eagle  contained  at  one  period  of  time  two 
hundred  and  seventy  grains  of  gold,  eleven  parts  fine, 
and  one  of  alloy,  and  at  another,  a different  weight  or 
a different  degree  of  purity.  Although  an  alteration 
of  our  mint  proportions,  may  not  be  as  flagrant  a vio- 
lation of  the  public  faith,  as  those  above  referred  to, 
yet  we  have  seen  that  creditors,  by  its  operation,  may 
be  deprived  of  their  just  rights,  in  case  of  a restoration 
of  the  present  legal  proportions,  of  one  to  fifteen,  when 
perhaps,  as  a remedy  for  that  evil,  the  next  step  might 
be  to  reduce  the  quantity  or  to  alter  the  purity  of  the 
silver  contained  in  the  dollar^  and  thereby  authorise  a 
second  fraud  more  odious  than  the  first.  Tampering 
with  the  metallic  currency  of  the  nation  is  a dange- 
rous employment,  and  if  it  be  commenced,  there  is  no 
foreseeing  where  it  may  stop. 

But  it  may  be  asked,  is  it  not  necessary  that  some- 
thing should  be  done  in  relation  to  our  coinage?  In 
answer  to  this  question  I would  reply,  that  if  it  is  at 
all  desh'able  that  gold  coins  should  be  struck  at  our 
mint,  it  should  be  upon  a different  principle  from  that 
which  prevails.  The  whole  present  expense  of  our 
gold  coinage,  is  an  absolute  loss  to  the  nation. 
Nearly  all  the  pieces  which  are  coined  are  exported 
to  Europe,  where  they  are  exchanged  for  their  pro- 
per equivalents^  and  melted,  and  thus  our  mint  is  oc- 
cupied at  no  trifling  cost,  in  assaying  and  stamping, 
free  of  charge  to  the  owners,  the  bullion  which  our 
merchants  are  daily  shipping  abroad.  I would  sug- 
gest that  the  further  coinage  of  eagles  and  their  frac- 
tional parts  be  abolished,  and  that  authority  be  given 
for  the  coinage  of  new  pieces  to  be  called  by  neio 
names,  to  contain  respectively  an  ounce,  a half  an 
ounce.,  and  a quarter  of  an  ounce  of  standard  gold. 

Between  these  pieces  and  silver  no  proportionate 
value  should  be  attempted  to  be  established,  but  they 


212 


APPENDIX. 


should  be  left  to  find  their  value  in  market  like  all 
other  commodities.  The  advantage  of  such  coins 
over  the  eagles  would  be,  that  as  every  body  would 
soon  become  acquainted  with  their  weight,  without 
being  obliged  to  resort  to  books  in  order  to  ascertain 
the  precise  number  of  pennyweights  and  grains  con- 
tained in  them,  the  mode  of  estimating  their  value  in 
silver  would  soon  become  familiar,  and  those  who 
possessed  them  would  have  less  difficulty  in  exchang- 
ing them  for  their  proper  equivalents,  than  they 
would  have  with  any  coin,  of  which  the  weight  could 
not  be  universally  and  readily  recollected.  The  cir- 
cumstance of  the  British  and  American  standards 
being  the  same,  would  render  this  course  the  more 
advisable.  The  quotations  of  the  price  of  gold  and 
silver,  which  are  brought  by  every  ship,  would  keep 
us  as  regularly  advised  of  the  value  of  an  ounce  of 
gold,  as  of  a barrel  of  flour;  and  there  is  every  reason 
to  believe,  that  as  the  fluctuations  in  the  relative 
value  of  the  two  metals  are  not  diurnal  or  monthly, 
nor  even  always  annual,  the  proposed  coins  would 
find  their  way  very  readily  into  circulation. 

It  is  a fact,  familiar  to  all  who  are  acquainted  with 
the  affairs  of  the  western  country,  that  depreciated 
bank  notes  pass  amongst  the  merchants  there,  with 
perfect  facility  for  what  they  are  worth;  and  to  such 
a system  has  this  practice  been  reduced,  that  the 
newspapers  regularly  publish  the  prices  current  of 
bank  notes  at  the  principal  money  markets  to  be  re- 
ferred to  as  the  scale  of  value.  So  would  it  be  with 
gold  coins  of  a well  known  weight  and  standard, 
which  might  even  maintain  for  a long  period  together 
something  like  a settled  proportion  to  silver.  An  ad- 
ditional reason  why  eagles  cannot  readily  pass  by 
weight,  is  that  the  idea  of  their  being  by  law  the 
equivalent  of  ten  silver  dollars,  is  so  deeply  rooted  in 
the  minds  of  the  community,  that  it  would  be  next  to 
impossible  to  eradicate  it.  Those  only  who  under- 
stand the  subject,  or  whose  trade  renders  them  con- 


APPENDIX. 


213 


versant  with  it,  are  acquainted  with  the  true  value 
of  an  eagle,  and  they  are  thereby  enabled  to  take 
advantage  of  those  who  are  less  enlightened  than 
themselves.  But,  let  a new  coin  make  its  appearance 
of  a familiar  and  well  known  weight,  untrammeled 
by  legal  proportions,  new  views  would  present  them- 
selves to  the  public,  and  even  common  minds  would 
be  able  to  comprehend,  what  now  appears  to  them 
to  be  enveloped  in  mystery.  Suppose  further,  that 
this  new  coin,  instead  of  containing  an  otmce^  should 
contain  the  precise  quantity  of  gold  contained  in  the 
sovereign,  or  true  pound  sterling,  lately  emitted  from 
the  British  mint,  what  incalculable  benefits  would 
not  result?  The  important  question  of  our  exchange 
with  England,  would  be  exhibited  in  its  true  light, 
and  the  whole  clamor  about  the  balance  of  trade, 
an  excess  of  imports  over  exports,  and  the  necessity 
of  laws  to  restrict  the  former,  would  cease,  and  leave 
our  law  makers  at  liberty  to  study  the  true  interests 
of  the  country.  It  would  then  be  seen,  that  the  high 
nominal  exchange  on  England  is  not  the  result  of  a 
balance  of  trade  against  us,  but  chiefly  the  eflect  of  a 
change  in  the  relative  value  of  gold  and  silver,  and 
that  the  gold  pound  sterling  is  the  equivalent  of  484 
cents,  and  not  444  cents  in  silver.^ 

It  has  been  inquired  by  some,  in  case  such  a coin 
as  the  one  first  suggested  were  authorised,  whether  it 
would  not  be  advisable,  in  order  to  give  it  a currency 
by  tale,  to  declare  by  law  that  it  should  be  receivable 
in  all  dues  to  the  government,  as  the  equivalent  of  a 
fixed  quantity  of  silver?  I reply,  that  such  a course 
would  be  liable  in  a great  degree  to  the  objections 
urged  against  the  principle  of  establishing  legal  propor- 
tions; and  I do  not  conceive  that  it  would  be  attended 
with  any  advantage  sufficient  to  counterbalance  the 
risk  of  being  obliged  to  take  the  gold,  if  at  any  time  it 

* When  this  was  written,  the  exchange  upon  London  in  the 
United  States,  was  at  twelve  and  a half  per  cent  advance. 


214 


APPENDIX. 


should  so  fall  in  relation  to  silver,  as  to  make  it  the 
interest  of  the  public  debtor  to  discharge  his  obligati  ons 
in  the  former  rather  than  in  the  latter  metal,  in  which 
case  the  government  would  be  a loser  of  part  of  its 
revenue,  and,  in  addition  to  that,  be  obliged  to  become 
bullion  dealers  for  the  purpose  of  selling  the  coin  paid 
into  the  public  treasury.  It  would  also  be  giving  a 
forced  currency  to  a coin,  which,  if  it  cannot  find  its 
way  into  circulation  by  the  operation  of  natural  means  j 
had  better  not  circulate  at  all,  and  would  be  laying 
the  foundation  fora  course  of  legislation,  which  might 
ultimately  be  productive  of  mischief.  If  no  such  law 
should  be  enacted,  the  price  of  an  ounce  of  gold  would 
regularly  conform  to  the  variations  of  the  market, 
which,  being  in  their  nature  slight  and  gradual,  could 
produce  a serious  loss  to  nobody.  Whereas  a law  to 
establish  a fixed  value  in  payments  to  the  government 
might  be  repealed  at  a moment  unexpected  by  those 
who  had  received  the  coins  at  such  valuation,  by 
which  a considerable  losS  might  fall  upon  many,  who 
were  not  conversant  with  the  principles  which  deter- 
mined the  proportions. 

It  has  also  been  asked,  upon  the  supposition  of  the 
establishment  of  new  mint  proportions  conforming  to 
the  actual  relative  value  in  the  markets  in  Europe  of 
gold  and  silver,  what  would  be  the  effect  of  a seigno- 
rage on  coins,  that  is,  a charge  for  coinage  at  the  mint, 
in  restraining  their  exportation?  To  this  question  I 
would  reply. 

1.  That  if  the  seignorage  were  of  an  equal  per  cent- 
age  upon  both  metals^  it  would  leave  the  matter  where 
it  stood,  inasmuch  as  their  relative  value  would  remain 
the  same,  as  if  no  seignorage  was  exacted;  and  that 
as  regards  the  question  of  exportation,  the  seignorage 
would  be  a nullity.  The  causes  which  operate  upon 
the  precious  metals,  in  driving  them  from  one  country 
to  another,  have  reference  only  to  the  intrinsic  worth 
of  coins,  and  not  to  their  denominations.  The  quan- 
tity of  silver  contained  in  a Spanish  dollar,  would  be 


APPENDIX. 


215 


just  as  much  subject  to  the  laws  of  exportation,  as  it 
would  be,  if  it  was  denominated  a French  crown,  and 
declared  by  our  laws  to  be  the  equivalent  of  1 10  cents; 
and  so  would  an  eagle  be  just  as  liable  to  exportation, 
if  it  was  called  by  any  other  name,  and  declared  by 
law  to  be  the  equivalent  of  eleven  dollars. 

2.  That  if  the  seignorage  was  charged  upon  one  of 
them  only,  it  would  be  difficult  to  foresee  upon  which 
of  them  it  ought  to  be  charged;  for  in  the  course  of  the 
ensuing  five  years,  it  is  quite  as  possible  that  silver 
will  rise  in  relation  to  gold,  as  that  gold  will  rise  in 
relation  to  silver. 

3.  Tliat  if  it  be  placed  upon  gold  only,  under  the 
impression  that  goldmight  rise  still  further,  it  ought 
to  be  ascertained,  in  order  to  render  it  effective,  how 
far  gold  will  rise,  which  is  impossible;  for  unless  the 
seignorage  be  equal  to  the  extent  of  the  departure  of 
gold  from  the  proportions  existing  at  the  time  of  fixing 
the  seignorage,  it  would  be  of  no  avail.  A seignorage 
of  six  per  cent,  on  the  present  eagles,  had  it  been 
originally  imposed,  would  not  have  prevented  their 
exportation;  for  at  SlO  60-100  a-piece,  they  would 
constitute  a more  profitable  remittance  to  Great 
Britain,  than  bills  purchased  at  the  present  rate  of  ex- 
change. 

A very  small  seignorage  on  gold,  therefore,  might 
answer  no  purpose,  as  a measure  restrictive  of  expor- 
tation; for  if  it  were  limited  to  one  or  two  per  cent,  a 
change  in  the  relative  value  of  gold  and  silver  abroad 
to  that  extent,  would  neutralise  it,  if  gold  should  be- 
come more  valuable,  whilst  a high  seignorage  would 
unquestionably  be  productive  of  injurious  consequen- 
ces. This  will  be  shown  from  the  following  illustra- 
tions, founded  upon  the  assumption  of  one  to  sixteen 
as  the  new  mint  proportions,  deducting  Jive  per  cent 
for  the  seignorage^  the  market  proportions  being  also 
one  to  sixteen. 

First.  So  long  as  the  market  and  mint  proportions 
of  the  two  metals  remain  exactly  the  same,  gold  may 


216 


APPENDIX. 


be  coined  as  fast  as  it  is  brought  into  the  country;  for 
if  the  holder  of  one  hundred  ounces  can  get  it  promptly 
coined  at  the  mint  into  ninety-five  ounces  of  pieces, 
which  are  declared  by  law  to  be  a legal  tender  of  the 
equivalent  of  sixteen  hundred  ounces  of  silver,  it  will 
be  the  same  thing  to  him,  whether  he  does  so,  or  sells 
it  in  the  market  for  sixteen  hundred  ounces  of  silver. 

Secondly.  In  case  gold  and  silver  should  vary  in  the 
market,  and  assume  a greater  difference  than  the  new 
mint  proportions  of  one  to  sixteen, /Ae  event  attempt- 
ed to  be  guarded  against^  then  no  more  gold  would 
be  sent  to  the  mint;  for  the  possessor  of  one  hundred 
ounces  of  that  metal,  who  could  exchange  it  in  the 
market  for  even  a small  fraction  more  than  sixteen 
hundred  ounces  of  silver,  would  not  be  willing  to  have 
it  coined  into  ninety-five  ounces,  which  he  could  by 
law  only  pass  for  1 600  ounces  of  silver.  As  regards 
the  coins  which  had  been  previously  emitted,  they 
would  continue  to  circulate,  until  ninety-five  ounces 
of  them  would  sell  as  bullion  for  more  than  1600 
ounces  of  silver,  and  they  would  then  be  exported, 
because  the  possessor  of  them  would  in  that  case  be 
able  to  sell  them  in  the  market  for  more  than  their  legal 
value.  This  event,  if  the  coins  were  new^  would  hap- 
pen when  the  new  market  proportions  should  be  about 
one  to  seventeen;  but  if  they  were  old,  clipped,  or 
worn,  it  would  not  happen  until  afterwards. 

Thirdly.  A high  seignorage  on  gold  would  operate 
as  a bounty  on  counterfeiting^  and  might  even  be 
sufficient  to  induce  ingenious  rogues  to  manufacture 
gold  coins  of  full  weight  and  of  the  true  standard. — 
This  might  be  done  to  advantage  in  those  countries 
from  which  we  should  derive  our  gold  when  restored 
to  circulation,  and  we  might  perhaps  import  eagles 
of  foreign  manufacture  of  lawful  weight  and  purity,  at 
a cheaper  rate  than  that  at  which  they  could  be  pro- 
cured at  our  mint,  in  the  same  manner  as,  it  is  sup- 
posed, many  a cask  of  copper  cents  has  been  imported. 

Fourthly.  If,  however,  on  the  other  hand,  gold,  in- 


APPENDIX. 


217 


Stead  of  rising,  as  is  supposed  under  the  second  head, 
should  fall  in  the  market  in  relation  to  silver,  and 
bear  the  proportion  of  one  to  fifteen,  in  that  case, 
great  quantities  of  gold  would  be  sent  to  the  mint  to 
be  coined,  for  the  simple  reason,  that  the  possessor  of 
one  hundred  ounces  could,  by  that  means,  procure 
ninety-five  ounces  of  coin,  equivalent  in  the  payment 
of  debts  to  sixteen  hundred  ounces  of  silver,  whereas, 
by  selling  his  hundred  ounces  of  gold  in  the  market, 
he  could  procure  but  1500  ounces  of  silver.  In  such 
an  event,  the  silver  would  leave  the  country  to  be  ex- 
changed for  gold  in  order  to  be  coined,  and  in  a few 
months  silver  coins  would  be  as  scarce  as  gold  ones 
are  now,  excepting  indeed  the  small  ones,  which  are 
so  diminished  in  weight  by  friction,  as  already  to  have 
lost  a considerable  part  of  their  intrinsic  worth. 

In  addition  to  the  above  observations,  it  must  be 
kept  in  mind,  that  all  the  objections  urged  against  a 
variation  of  the  mint  proportions,  as  regards  the  obli- 
gation of  contracts,  apply  with  equal  force  against  the 
adoption  of  a seignorage,  inasmuch  as  creditors  would 
be  compelled,  in  discharge  of  debts,  to  accept  a less 
quantity  of  gold,  than  they  originally  stipulated  for. 

It  may  perhaps  be  useful  to  some  readers  to  know 
what  are  the  existing  proportions  in  the  relative  value 
of  gold  and  silver  in  the  European  market.  Of  this 
matter  we  know  nothing  more  at  this  moment,  than 
what  is  furnished  by  the  London  quotations,  which 
owing  to  the  facility  of  intercourse,  and  the  cheapness 
of  transportation  of  the  precious  metals  between  that 
city  and  the  principal  continental  cities,  may  be  con- 
sidered as  furnishing  materials  for  an  estimate,  not  far 
from  the  truth.  By  dates  of  November  2,  we  learn 
that  dollars  were  4^.  ^\d.  per  ounce.  The  mint  price 
of  gold,  which  is  also  the  present  market  price,  is  3/. 
17^.  lOifl?.  per  ounce.  These  two  prices  stand  in  the 
proportions  of  1 to  164  and  a small  fraction,  but  as 
the  purity  of  each  metal  is  not  precisely  the  same,  a 
19 


218 


APPENDIX. 


nice  calculation  would  vary  a trifle  from  these  pro- 
portions. 

Huskisson. 


B. 


HISTORY  OP  THE  GOLD  COINAGE  OF  THE  UNITED 
STATES. 

From  the  Philadelphia  Examiner^  Vol.  2,  of  October  15,  1834. 

The  Gold  Coinage. — The  party  aspect  which  has 
been  attempted  to  be  given  to  the  bill  passed  by 
Congress  in  the  month  of  June  last,  altering  the  rela- 
tive value  of  gold  and  silver,  has  rendered  the  present 
moment  rather  unpropilious  for  an  investigation  into 
its  real  merits.  Like  the  American  system,  it  is  looked 
upon  as  a measure  by  which  one’s  devotion  to  a par- 
ticular man  is  to  be  tested;  and  the  same  repug- 
nancy to  listen  to  arguments  against  the  tariff,  which, 
a few  years  ago,  was  exhibited  by  the  friends  of 
Mr.  Clay,  is  now  displayed  as  regards  listening  to 
arguments  against  the  gold  bill,  by  the  friends  of 
General  Jackson.  It  is  true,  that  all  who  approved 
the  gold  bill  were  not  friends  of  General  Jackson,  and 
that  all  who  opposed  it  were  not  his  foes,  but  as  the 
vote  in  congress  was  made,  in  a great  degree,  a party 
vote,  the  party  which  so  turned  it  to  account  are 
using  every  effort  to  reap  the  fruits  of  their  policy. 
Truth,  however,  has  a power  which  no  party  man- 
agement can  permanently  counteract,  and  the  time 
will  come  when  those  who  now  think  that  an  act  of 
congress  has  showered  gold  upon  the  country,  will 


APPENDIX. 


219 


lament  the  blindness  which  prevented  them  from  fore- 
seeing its  baneful  effects. 

Our  present  design  is  to  make  a few  remarks  on 
the  subject  of  the  coinage,  and  as  we  have  no  party 
ends  to  answer,  nor  no  private  interest  to  consult,  we 
shall  examine  the  subject  purely  as  a question  of 
science,  with  the  design  of  giving  to  those  who  desire 
thoroughly  to  understand  the  true  state  of  the  case, 
the  elements  of  an  investigation. 

Gold  and  silver,  like  all  other  commodities,  have 
an  exchangeable  value.  This  exchangeable  value, 
too,  like  that  of  all  other  commodities,  is  regulated  by 
the  cost  of  production,  and  by  the  proportion  which 
the  supply  bears  to  the  demand,  and  hence  these 
metals  differ  in  nothing  from  other  commodities  in 
this  particular. 

If  gold  and  silver  could  be  dug  out  of  the  mines, 
be  separated  from  the  ore,  be  smelted  and  refined  at 
one  half  the  actual  cost,  or,  if  they  were  as  abundant 
as  iron  and  lead,  it  is  manifest  that  their  exchange- 
able value  would  be  greatly  diminished;  that  is,  they 
would  exchange  for  a much  less  quantity  of  other 
commodities,  than  they  can  now  be  exchanged  for. 
Each  one  of  these  metals,  however,  is  subject  to  its 
own  particular  laws,  and  each  one  stands  in  relation 
to  all  other  commodities,  in  regard  to  exchangeable 
value,  precisely  as  any  other  commodity  stands  in 
reference  to  all  the  rest. 

Between  gold  and  silver,  therefore,  there  is  not  any 
fixed  proportion  as  to  value,  established  by  nature, 
any  more  than  there  is  a fixed  proportion  established 
by  nature,  between  lead  and  iron,  or  between  wheat 
and  tobacco.  Nature  does  not  say,  that  one  ounce  of 
gold  shall  always  be  worth  so  many  ounces  of  silver, 
any  more  than  she  says,  that  a certain  number  of 
pounds  of  iron  shall  always  be  worth  so  many  pounds 
of  lead,  or,  that  a busliel  of  wheat  shall  always  be 
worth  a fixed  quantity  of  tobacco.  The  truth  of  this 


220 


APPENDIX. 


proposition  must  be  self-evident  to  every  intelligent 
mind,  and  we  shall  not,  therefore,  enlarge  upon  it. 

Taking  it,  therefore,  for  granted,  that  the  reader 
admits  these  premises,  the  next  position  to  be  laid 
down  is,  that  it  is  not  in  the  power  of  human  legisla- 
tion to  establish  any  fixed,  unalterable  proportions 
between  the  value  of  any  two  commodities  in  exist- 
ence. It  is  not  in  the  power  of  human  laws  to  estab- 
lish that  one  ounce  of  gold  shall  permanently  be  worth 
a certain  number  of  ounces  of  silver,  any  more  than 
they  can  fix  the  proportions  at  which  iron  and  lead, 
or  wheat  and  tobacco,  shall  be  permanently  exchang- 
able  for  one  another.  Laws  may  indeed  undertake  to 
prescribe  what  they  shall  be,  but  such  laws  are 
founded  in  absurdity,  and  had  their  origin  in  days  of 
ignorance,  when  the  lights  of  political  science  had 
scarcely  begun  to  shine. 

It  is  true,  however,  that  the  relative  value  of  gold 
and  silver  in  the  market  of  the  trading  world,  is  not 
so  liable  to  fluctuation  within  short  periods,  as  that 
of  most,  or  all  other  commodities.  It  sometimes  re- 
mains for  years  without  alteration,  but  this  is  no 
evidence  that  there  are  not  alterations,  and  the  mere 
fact  of  a change  within  the  last  twenty  years  of  six 
per  cent.,  affords  an  unanswerable  argument  against 
the  expediency  of  legal  adjustment.  For  how  do  we 
know  that  in  the  next  twenty  years  the  proportions 
may  not  fall  back  to  the  old  ratio,  or  advance  six  per 
cent,  still  further?  It  is  also  true,  that  the  regulations 
of  governments  have  an  influence  upon  the  relative 
market  value  of  the  two  metals.  They  may  drive 
either  metal  out  of  circulation,  by  rating  it  too  low  in 
reference  to  the  mint  price  of  the  other,  and  thus  di- 
minish the  demand  for  it  in  their  respective  countries, 
which  effect  cannot  take  place  without  disturbing  the 
market  proportions  in  all  other  countries.  But  this 
is  rather  a reason  why  governments  should  not  inter- 
fere, than  that  they  should  interfere,  inasmuch  as 


APPENDIX. 


221 


greater  fluctuations  might  take  place,  than  would  take 
place  from  the  operation  of  natural  causes  alone. 
Thus,  suppose  that  all  the  governments  of  Europe 
should  be  seized  with  the  silver  mania,  as  ours  has 
been  with  the  gold  mania,  and  establish  their  mint 
proportions  at  such  a ratio  as  would  drive  gold  out 
of  circulation,  and  substitute  silver  in  its  place,  is  it 
not  evident  that  such  a measure  would  enhance  the 
value  of  silver  in  Europe  as  exchangeable  for  gold, 
and  thus  materially  influence  their  relative  value? 
The  precise  eflect  of  the  various  mint  regulations  of 
the  different  countries  in  the  world,  upon  the  relative 
value  of  gold  and  silver  in  the  general  market,  could 
not  be  easily  ascertained,  nor  is  it  essential  to  our  in- 
quiry that  it  should  be. 

In  the  year  1792,  when  the  mint  of  the  United 
States  was  about  being  established,  and  when  bank 
notes  were  little  known,  and  intercourse  between 
distant  points  of  the  country  not  easily  carried  on,  it 
was  natural  that  the  people,  who  before  the  revolu- 
tion, had  been  acquainted  with  guineas,  and  had  still 
strongly  impressed  on  their  memories  the  fatal  influ- 
ence of  the  continental  paper  money,  should  desire 
again  to  see  gold  coins  in  circulation,  if  for  no  other 
purpose  than  the  convenience  of  transmission.  The 
expediency  of  adopting  one  only  of  the  precious  me- 
tals as  the  standard  of  the  money  of  the  country,  leav- 
ing the  other  to  find  its  relative  value  by  the  laws  of 
competition,  was  not  at  that  time  decided,  nor,  indeed, 
is  it  probable  that  the  importance  and  sound  policy 
of  adopting  such  a measure,  was  at  that  day  apparent 
to  many.  It  was  accordingly  resolved,  that  gold  as 
well  as  silver  coins  should  be  struck  at  the  mint;  and 
in  fixing  the  relative  value  of  the  two  metals,  one  to 
fifteen  was  considered  to  be  the  ratio  which  would 
establish  an  equivalent  currency,  and  it  was  accord- 
ingly  provided,  in  the  act  of  2d  of  April,  of  that  year, 
that  in  the  coins  of  the  United  States,  one  ounce  of 
19"^ 


222 


APPENDIX. 


pure  or  fine  gold,  should  be  the  equivalent  of  fifteen 
ounces  of  pure  or  fine  silver.^ 

It  so  happened,  that  for  some  years  after  the  pas- 
sage of  this  law,  the  market  proportions  abroad,  as 
well  as  at  home,  continued  to  correspond  with  the 
mint  proportions,  so  that  the  two  metals  were  both 
retained  in  circulation  at  the  legal  ratio.  Neither 
one  was  worth  for  exportation  more  than  the  other, 
and  hence  an  eagle  and  ten  dollars  were  convertible 
terms,  and  at  the  banks  either  could  be  obtained  in 
exchange  for  notes,  at  the  option  of  the  holder. 

It  was  in  the  early  part  of  the  year  1818,  when  the 
subject  of  the  resumption  of  cash  payments  by  the 
liank  of  England  (which  had  been  suspended  since 
1797)  occupied  the  attention  of  the  British  public,  and 
prepared  the  way  for  the  act  of  Parliament  to  that  ef- 
fect, which  was  adopted  in  1819,  that  a change  in  the 
relative  value  of  gold  and  silver  in  the  market  of  the 
trading  world,  first  became  generally  apparent  in  the 
United  States.  One  ounce  of  gold,  from  the  operation 
of  that  or  other  causes  which  disturbed  the  then  exist- 
ing proportions  between  supply  and  demand,  became 
worth  more  than  fifteen  ounces  of  silver.  In  cases, 
therefore,  where  remittances  of  coin  were  made  from 
the  United  States  to  England,  gold  was  preferred'to  sil- 
ver, for  the  simple  reason  that  a gold  eagle,  which  could 
be  obtained  here  for  ten  silver  dollars,  could,  in  Lon- 
don be  converted  into  more  pounds,  shillings  and 
pence,  than  ten  silver  dollars. 

This  fact  of  the  exportation  of  the  gold  coins  did 
not  pass  unobserved,  however,  by  those  who  had 
made  the  subject  of  coinage  and  currency  a study. 
The  matter  was  introduced  to  the  notice  of  congress 

* The  weight  of  the  eagle  was  fixed  at  247  50-100  grs.  fine, 
and  270  grains  standard  gold.  The  weight  of  the  dollar  at  371 
25-100  grains  fine,  and  416  standard  silver.  The  standard  of 
gold  was  fixed  at  22  carats,  that  is,  11  parts  fine,  to  1 part  alloy. 
That  of  silver  at  1485  parts  fine,  to  179  parts  alloy. 


APPENDIX. 


223 


by  Mr.  Lowndes,  at  so  early  a period  as  the  27th  of 
November,  1818,  when  a resolution  submitted  by  him 
was  adopted  by  the  house  of  representatives,  in  the 
following  words: 

Resolved,  That  a committee  be  appointed  to  in- 
quire whether  it  be  expedient  to  make  any  amend- 
ments in  the  laws  which  regulate  the  coins  of  the  Uni- 
ted States  and  foreign  coins.” 

On  the  26th  of  January,  1819,  Mr.  Lowndes,  as 
chairman  of  the  committee  appointed  under  this  reso- 
lution, made  a detailed  report,  favorable  to  a change 
in  the  mint  proportion.  This  report  was  accompanied 
by  a bill,  providing  as  follows. 

1.  That  there  should  be  retained  by  the  mint  as 
seignorage,  from  every  371  grains  and  25-100  of  a grain 
of  fine  silver,  (the  weight  of  the  dollar  established  by 
the  act  of  2d  April,  1792,)  the  quantity  of  14  grains 
and  85-100  of  a grain,  so  as  to  reduce  the  weight  of 
the  dollar  to  356  grains  40-100  of  a grain  of  fine  sil- 
ver, and  to  399  36-100  grains  standard  silver.  Small 
coins  to  be  in  the  same  proportion. 

2.  That  the  Eagle  should  be  reduced  from  247^ 
grains  of  fine  gold,  or  270  grains  standard  gold  (the 
weight  established  by  the  act  of  2d  April,  1792),  to 
237  98-100  grains  fine,  and  259  61-100  grains  stand- 
ard gold,  and  small  coins  in  proportion.  No  deduc- 
tion to  be  made  of  the  quantity  delivered  at  the  mint 
for  seignorage  as  in  the  case  of  silver,  but  the  expense 
of  refining  all  gold  and  silver  below  the  mint  standard 
to  be  paid  by  the  owner. 

Prior  to  this  report,  a communication  was  made, 
on  the  6th  of  January,  in  pursuance  of  a call  from  the 
senate,  by  Mr.  Crawford,  secretary  of  the  treasury, 
accompanied  by  a letter  from  Robert  Patterson,  Esq., 
director  of  the  mint,  dated  28th  December  1318,  in 
which  that  gentleman,  adverting  to  the  exportation  of 
the  gold  coins,  recommended  a change  in  the  relative 
value  of  ten  per  cent,  which,  had  it  been  adopted, 


224 


APPENDIX. 


would  have  expelled  every  silver  dollar  and  half  dol- 
lar from  the  country,  in  the  course  of  a single  year. 

Neither  of  these  suggestions  was  acted  upon,  nor 
was  the  subject  resumed  at  the  next  session  of  congress. 
On  the  2d  of  February,  1821,  however,  a second  re- 
port was  presented  to  the  house  of  representatives,  by 
Mr.  Whitman,  on  the  part  of  a committee  to  which 
had  been  referred  a resolution  directing  an  inquiry. 
This  report  was  also  accompanied  by  a bill,  simply 
providing  for  the  reduction  of  the  eagle  and  its  frac- 
tions to  the  weight  prescribed  by  the  bill  of  Mr. 
Lowndes,  leaving  the  silver  coins  untouched.  This 
reduction  was  equal  to  an  increase  in  the  value  of 
gold  of  4 per  cent,  which  was  at  that  time  considered 
to  be  equal  to  the  change  in  the  relative  value  be- 
tween that  metal  and  silver,  which  had  occasioned 
the  exportation  of  the  eagles.  This  is  proved  by  the 
report,  which  advances  as  an  argument  in  favor  of 
the  change,  that  three  half  eagles,  worth  in  the  United 
States,  ^15,  were  worth  in  Spain  or  Portugal,  ®16,  in 
France,  Sl5i,  and  in  England  ^15  1-5.  This  bill 
like  its  predecessor,  remained  without  being  acted  on, 
and  the  exportation  of  gold  coins  continued  until  early 
in  the  year  1822,  when  not  one  was  to  be  seen  in  cir- 
culation, although  six  millions  of  dollars  had  been 
coined  at  t*he  mint,  of  which  ®1, 319, 030  were  struck 
in  1820,  and  §185,325  in  1821.  Had  the  measure 
then  recommended  been  adopted,  the  bill  would  have 
proved  inoperative,  for  at  a subsequent  period,  a great- 
er change  than  four  per  cent,  in  the  relative  value  of 
gold  and  silver  took  place,  which  has  ever  since  con- 
tinued to  exist,  and  which  would  have  carried  off  the 
new  coins. 

The  death,  in  the  year  1822,  of  Mr.  Lowndes,  who 
was  one  of  the  few  individuals  in  congress  who  had 
turned  his  attention  to  the  subject  of  the  coinage,  and 
the  reluctance  of  that  body  to  intermeddle  with  a 
subject  of  so  delicate  a nature,  jointly  combined  to 


APPENDIX. 


225 


postpone  for  a time  all  legislative  action  on  the  sub- 
ject. The  facilities  of  remittance  afforded  by  bank 
notes  and  bills  of  exchange,  and  by  improvements 
in  rail-roads  and  steamboats,  obviated  entirely  the  ne- 
cessity of  a gold  currency;  and  as  the  natural  course 
of  things,  without  any  breach  of  public  faith  or  viola- 
tion of  private  contracts,  had  placed  the  country  in  the 
desirable  situation  of  having  but  one  legal  tender,  we 
should  possibly  have  for  many  years  remained  in  that 
situation,  had  it  not  been  for  a fresh  occurrence,  by 
which  fancied  private  interest  was  brought  to  bear 
upon  congress.  That  occurrence  was  the  discovery 
of  gold  in  North  Carolina,  and  other  southern  states, 
respecting  which,  the  following  short  notice,  derived 
from  the  annual  report  of  the  director  of  the  mint,  of 
January  1,  1831,  may  be  interesting. 

In  the  last  annual  report,  the  progressive  develop- 
ment of  the  gold  region  of  the  United  States  was 
illustrated  by  referring  to  the  increase  of  the  annual 
receipts  from  North  Carolina,  which  previous  to  1824 
had  been  inconsiderable,  but  from  that  year  to  1829, 
inclusive,  had  advanced  from  $5000  to  ^128,000:  and 
also  to  the  then  novel  occurrence  of  gold  having  been 
received  at  the  mint  from  Virginia  and  South  Caro- 
lina, about  $2500  having  been  received  from  the 
former,  and  ^3500  from  the  latter.  The  past  year 
exhibits  in  relation  to  all  those  states,  a conspicuous 
increase  in  the  production  of  gold,  and  presents,  also, 
the  remarkable  fact  of  ^212,000  in  gold  received  from 
Georgia,  from  which  state  no  specimen  thereof  had 
been  presented  at  the  mint  in  any  previous  year.^’ 

In  the  report  of  January,  1834,  the  director  gives 
the  following  statement  of  the  amount  of  gold  received 
at  the  mint  from  the  southern  states,  in  the  years 
mentioned,  stating  at  the  same  time,  that  he  has  rea- 
son to  believe  that  in  the  two  last  years  not  more  than 
half  the  gold  produced  in  the  country  had  been  re- 
ceived at  the  mint,  the  residue  having  been  consumed 
in  manufactures,  or  exported  in  bullion. 


226 


APPENDIX. 


1824, 

- 

- 

- 

- 

5,000 

1825, 

- 

- 

- 

- 

17,000 

1826, 

- 

- 

- 

- 

20,000 

1837, 

- 

- 

- 

- 

21,000 

1828, 

- 

- 

- 

46,000 

1829, 

- 

- 

- 

- 

140,000 

1830, 

- 

- 

- 

- 

466,000 

1831, 

- 

- 

- 

- 

520,000 

1832, 

- 

- 

- 

- 

678,000 

1833, 

868,000 
®2,78 1,000 

This  gradually  increasing  production  of  gold  at  the 
south,  engendered  precisely  the  same  spirit  as  the  in- 
creased production  of  iron  had  done  at  the  north. 
The  owners  of  the  gold  mines  cried  out  for  legisla- 
tive protection,  as  the  owners  of  the  iron  mines  had 
previously  done,  and  laws  were  solicited  to  enable  the 
former  to  get  more  for  their  gold,  or  rather  for  the 
rent  of  their  land,  than  they  could  otherwise  have  ob- 
tained, just  as  laws  were  solicited  to  enable  the  latter, 
to  get  more  for  their  iron,  or  for  the  rent  of  their  land, 
than  they  could  otherwise  have  obtained.  This  influ- 
ence annually  increasing  in  strength,  constituted  a 
powerful  element  towards  a revival  of  the  scheme  of 
changing  the  relative  value  of  gold  and  silver,  the 
history  of  which  is  as  follows: 

On  the  29th  of  December,  1828,  Mr.  Sanford  of 
New  York  introduced  in  the  senate  of  the  United 
States,  a resolution  which  was  adopted  in  the  follow- 
ing words,  viz: 

Resolved^  That  the  secretary  of  the  treasury  as- 
certain, with  as  much  accuracy  as  possible,  the  pro- 
portional value  of  gold  and  silver  in  relation  to  each 
other;  that  he  state  such  alterations  in  the  gold  coins 
of  the  United  States  as  may  be  necessary  to  conform 
those  coins  to  the  silver  coins  in  true  legitimate  value, 
and  that  he  report  at  their  next  session.’^ 

On  the  9th  of  December,  1829,  the  same  gentleman 


APPENDIX.  227 

offered  another  resolution,  which  was  agreed  to,  in  the 
following  words: 

Resolved,  That  a select  committee  be  appointed 
to  consider  the  state  of  the  current  coins,  and  to  report 
such  amendments  of  the  existing  laws  concerning 
coins  as  may  be  deemed  expedient.^^ 

In  compliance  with  this  resolution,  Mr.  Sanford,  on 
the  11th  of  January,  1830,  made  an  able  report,  con- 
taining a fund  of  interesting  and  useful  scientific  mat- 
ter in  reference  to  gold,  silver,  and  copper  coins,  leav- 
ing the  question  of  a change  in  the  relative  value  of 
gold  and  silver,  unnoticed,  with  the  view,  no  doubt, 
of  waiting  for  the  communication  of  the  secretary  of 
the  treasury,  called  for  on  that  subject. 

That  communication  was  made  by  Mr.  Ingham  on 
the  4th  of  May,  1830,  under  the  title  of  a “ report 
from  the  secretary  of  the  treasury,  respecting  the  rela- 
tive value  of  gold  and  silver,  &c.^^ — It  was  drawn  up 
with  great  ability,  and  was  the  result  of  much  scienti- 
fic and  historical  research,  eventuating  in  a conviction 
on  the  mind  of  the  secretary,  that  it  was  not  clearly 
advisable  to  act  on  the  subject,  but  recommending,  for 
reasons  given  at  length,  that  if  congress  should  other- 
wise decide,  the  ratio  of  1 to  15.625  would  be  as  near 
as  could  be  ascertained,  the  proportions  between  the 
two  metals  which  would  make  them  circulate  inter- 
changeably. 

On  the  9th  of  December,  1830,  Mr.  Sanford  renewed 
his  resolution  of  the  preceding  session,  which  was 
adopted  as  follows: 

Resolved,  That  a select  committee  be  appointed 
to  consider  the  state  of  the  current  coins,  and  to  report 
such  amendments  to  the  existing  laws  concerning 
coins,  as  maybe  deemed  expedient.^^ 

In  conformity  with  this  resolution,  Mr.  Sanford,  as 
chairman,  of  the  committee,  reported,  on  the  15th  of 
the  same  month,  a bill  entitled  An  act  concerning 
the  gold  coins  of  the  United  States.’^  This  bill  re- 
duced the  weight  of  the  eagle  (and  of  halves  and 


228 


‘APPENDIX. 


quarters  proportionally)  from  270  grains  standard 
gold,  to  254  grains  and  38-53  parts  of  a grain,  being 
an  augmentation  of  the  value  of  gold,  as  compared 
with  silver,  of  near  6 per  cent.  This  bill  passed  the 
senate  on  the  l4thof  January,  1831,  but  was  not 
acted  upon  by  the  house  of  representatives.  We  are 
not  aware  that  any  change  was  made  in  its  provi- 
sions, or  that  any  opposition  was  made  to  its  passage, 
in  the  senate. 

During  the  same  session  of  congress,  viz:  on  the 
23d  of  December,  1830,  Mr.  Campbell  White,  of  New 
York,  introduced  into  the  house  of  representatives,  a 
resolution  which  was  adopted  as  follows: 

Resolved^  That  a select  committee  be  appointed 
to  inquire  into  the  expediency  of  providing  by  law, 
that  dollars,  of  the  new  American  Governments,  and 
five  franc  pieces,  shall  be  a legal  tender  in  the  pay- 
ment of  all  debts  and  demands;  and  also,  whether  any 
additional  regulations  are  necessary,  relative  to  the 
re-coinage  of  foreign  silver  coin  at  the  mint;  and  that 
said  committee  have  leave  to  report  by  bill  or  other- 
wise.’’ 

In  March,  1831,  Mr.  White  made  a report  in  pur- 
suance of  the  foregoing  resolution,  in  which  the  expe- 
diency of  having  only  one  standard,  and  that  silver, 
was  urged,  and  the  proportion  of  1 to  15.625  between 
gold  and  and  silver  recommended,  in  case  congress 
should  resolve  upon  a change  in  the  relative  value. 

On  the  15th  of  December,  1832,  Mr.  White  renew- 
ed his  motion  for  the  appointment  of  a committee  on 
coins,  which  was  adopted. 

On  the  7lh  of  May,  1832,  Mr.  Wilde,  of  Georgia,  of- 
fered a resolution  instructing  the  committee  on  coins 
to  make  some  further  inquiries;  which  was  adopted, 
with  the  following  amendment,  proposed  by  Mr.  Ver- 
planck; 

“ And  also  to  inquire  into  the  expediency  of  mak- 
ing silver  the  only  legal  tender,  and  of  coining  and  is- 
suing gold  coins,  of  a fixed  weight  and  fineness,  which 


APPENDIX. 


229 


shall  be  received  in  payment  of  all  debts  to  the  United 
States,  at  such  rates  as  may  be  fixed  from  time  to  time, 
but  shall  not  be  otherwise  a legal  tender/’ 

The  session,  however,  having  terminated  without 
any  act  on  the  subject,  Mr.  Root,  of  New  York,  sub- 
mitted some  resolutions  on  the  14th  December,  1832, 
which  were  adopted,  calling  upon  the  director  of  the 
mint  for  information  concerning  the  relative  value  of 
gold  and  silver,  which  was  furnished  in  a report  from 
that  officer  on  the  14th  of  January  following.  Nothing 
however,  was  done,  until  the  28th  of  June,  1834,  when 
the  bill  in  question  became  a law. 

It  thus  appears  that  the  matter  had  been  kept  in  the 
view  of  congress  for  fifteen  years,  without  eventuating 
in  any  legislation,  and  the  question  naturally  presents 
itself,  what  could  have  been  the  reason  why  a matter 
now  considered  to  be  so  important  to  the  country, 
should  have  been  so  long  neglected?  To  this  question, 
we  can  give  a ready  reply.  The  matter  had  not  been 
made  a party  question,  being  regarded  as  one  of 
those  measures  which  involved  the  good  faith  of  the 
government,  and  the  stability  of  property,  all  par- 
ties were  disposed  to  approach  it  with  great  caution, 
as  it  behooved  them  to  do. 

The  arguments  employed  before  the  passage  of  the 
bill  against  interfering  with  the  subject,  may  be  simply 
summed  up  as  follows: 

1.  That  it  is  a dangerous  policy  for  governments  to 
tamper  with  their  coinage,  as  is  proved  from  the  fact 
that  the  British  pound  sterling,  which  will  now  pur- 
chase only  about  four  ounces  of  silver,  was  originally 
a pound  of  standard  silver,  and  that  the  French  livre, 
which  is  now  worth  only  19  cents,  was,  as  its  name 
imports,  originally  a pound  of  silver;  and  that  it  was 
to  be  feared,  that,  if  congress  did  to  day  diminish  the 
weight  of  the  gold  eagle,  it  might  to-morrow  diminish 
the  weight  of  the  silver  dollar,  and  thus  cheat  all  pub- 
lic and  private  creditors  out  of  a part  of  their  property. 

2.  That  no  law  could  prevent  the  fluctuations  in  re- 
20 


230 


APPENDIX. 


lative  value  to  which  gold  and  silver  are  liable,  in 
common  with  all  other  commodities,  and  that  a law 
made  to-day  might  prove  inoperative  to-morrow,  or 
what  would  be  worse,  might  require  to  be  changed  so 
frequently,  as  to  leave  the  coinage  of  the  country  in  a 
disturbed  or  unsettled  state,  highly  prejudicial  to  that 
confidence  between  man  and  man,  which  ought  to 
exist  in  reference  to  contracts  for  future  payments. 

3.  That  it  is  an  absurdity  to  have  more  legal  ten- 
ders than  one,  from  the  impossibility  of  establishing  an 
immutable  equivalency  between  two;  and  that  as 
silver  was  belter  known  to  our  citizens  than  gold,  es- 
pecially to  the  great  body  of  the  laboring  people, 
was  more  convenient  for  small  payments,  was  less 
liable  to  be  counterfeited,  and  was  the  money  in  which 
most  contracts  for  future  distant  payments  were  stipu- 
lated to  be  made,  it  would  be  unwise  to  enact  a law 
the  effect  of  which  might  be  to  expel  all  the  silver  from 
the  country. 

4.  That  if  a new  proportion  corresponding  to  the 
present  market  proportion,  were  to  be  adopted,  and  it 
should  so  happen  that  the  market  proportion  should 
hereafter  fall  back  towards  the  rate  of  1 to  15,  the  in- 
evitable effect  would  be  to  drive  the  silver  out  of  the 
country  whenever  the  course  of  trade  should  warrant 
exports  of  coin,  and  for  the  identical  reason  that  gold 
had  been  before  driven  out. 

5.  That  a law  declaring  that  an  existing  debt  for 
®10,  which,  at  the  time  of  the  contract,  meant  ten  sil- 
ver dollars,  or  a gold  coin  weighing  247i  grains  of  fine 
gold,  shall  now  be  discharged  with  a gold  coin  retain- 
ing the  same  name,  but  weighing  only  232  grains  of. 
fine  gold,  is  a-law  impairing  the  obligation  of  contracts 
and  is  a breach  of  the  public  faith  as  relates  to  all  pub- 
lic creditors  and  salary  officers. 

6.  That  should  the  event  take  place  of  silver  being 
driven  out  of  the  country,  its  absence  would  be  most 
sensibly  felt  in  all  the  small  money  transactions  of  the 
community,  owing  to  the  inconvenience,  even  if  they 


APPENDIX. 


231 


could  be  had  in  sufficient  abundance,  of  a gold  coin 
of  so  low  a denomination  as  one  dollar. 

7.  That  this  inconvenience  would  press  so  heavily 
upon  the  public,  that  they  would  call  out  for  a change 
in  the  laws,  or  what  is  quite  probable,  that  they  would 
fly  to  one,  dollar  hank  notes^  as  a remedy  for  the  evil, 
and  thus  render  the  currency  as  bad  as  it  was  in  1816, 
in  those  states  where  the  banks  did  not  pay  their  notes 
in  coin. 

8.  That  if  congress  should,  in  order  to  prevent  this 
calamity,  alter  the  law,  it  would  not  be  by  increasing 
the  weight  of  the  eagle,  but  by  diminishing  the  weight 
of  the  dollar,. and  thus,  we  should  lay  the  foundation 
for  a gradual  depreciation  of  the  currency,  which  at 
some  future  day  might  be  employed  to  the  perpetra- 
tion of  the  same  species  of  frauds  upon  public  and 
private  creditors,  as  have  marked  the  course  of  all 
governments  that  have  tampered  with  their  coinage. 

We  are  aware  that  in  making  these  remarks  we  are 
treading  upon  the  toes  of  many  of  the  readers  of  this 
Journal  in  Georgia  and  North  Carolina,  and  other 
states  where  gold  is  produced,  who  will  not  relish  a 
doctrine  that  seems  to  be  at  war  with  their  pecuniary 
interests.  We  can  not,  however,  permit  our  reverence 
for  what  we  conceive  to  be  the  truth,  to  be  smothered 
by  any  private  considerations.  We  would  have  pre- 
vented the  passage  of  the  gold  bill,  had  we  been  able, 
believing  it  to  be  pregnant  with  great  future  evils  to 
the  country,  and  unattended  with  one  single  benefit 
to  compensate  for  the  mischief  it  is  likely  to  produce. 
We  think  we  can  demonstrate,  that  as  a means  of 
breaking  up  the  paper  system,  it  is  utterly  futile,  and 
that  as  a means,  of  putting  money  into  the  pockets  of 
the  owners  of  gold  mines,  beyond  that  inappreciable 
sum  resulting  from  the  increased  value  given  to  the 
whole  supply  of  gold  in  the  commercial  world  by  the 
new  demand  for  the  American  circulation,  it  will  be 
found  wholly  delusive.  We  have,  however,  said 
enough  for  one  occasion,  and  shall  resume  the  sub- 


232 


APPENDIX. 


ject  hereafter,  simply  remarking,  that  by  the  bill,  re- 
cently passed,  a change  has  been  made  not  only  in  the 
weight  of  the  eagle,  but  in  the  standard  also;  the 
eagle  now  containing  232  grains  pure,  and  258  grains 
of  the  new  standard^  which  is  21.58  and  a small  frac- 
tion carats  fine,  instead  of  22,  which  is  a debasement 
of  one  and  three  quarters  per  cent. 


The  gold  coinage  again. 

From  the  same^  of  October  29,  1834. 

In  a former  article  on  this  subject,  we  stated  that 
the  discovery  of  gold  in  our  southern  states,  and  the 
gradually  increasing  production  of  that  metal  since 
the  year  1824,  had  occasioned  an  influence  to  be  ex- 
ercised upon  congress,  to  which  might  be  ascribed,  in 
a great  degree,  the  passage  of  the  recent  law,  changing 
the  relative  value  of  gold  and  silver,  from  1 to  15  to 
I to  16  and  a fraction.  In  that  article  we  also  stated^ 
that  by  this  change  the  owners  of  the  gold  mines 
would  derive  no  benefit  beyond  that  resulting  from  the 
trifling  increase  in  the  value  of  gold  which  would  be 
experienced  throughout  the  commercial  world,  owing 
to  the  increased  demand  for  the  currency  of  the  Uni- 
ted States.  We  proceed  now  to  prove  that  position, 
believing  that  as  much  error  is  prevalent  on  that  sub- 
ject at  the  south,  as  there  exists  at  the  north  in  refe- 
rence to  the  benefits  resulting  from  legislative  interfe- 
rence with  the  domestic  production  of  iron. 

The  common  notion  prevailing,  and  that  which  has 
been  most  extensively  urged  by  those  who  have  made 
the  gold  coinage  a party  question,  is,  that  the  pro- 


APPENDIX. 


233 


ducers  of  gold  are  now  enabled  to  get  6 2-3  per  cent.  ^ 
more  for  their  gold  than  they  used  to  get  under  the 
old  law,  seeing  that  232  grains  of  pure  gold  are  now 
declared  to  be  the  equivalent  of  ten  dollars,  whereas, 
under  the  old  law,  247i  grains  were  the  equivalent  of 
that  sum.  This  assertion  would  have  been  true, had  the 
old  law  prohibited  the  producers  of  gold  from  receiv- 
ing for  their  gold  more  than  ten  dollars  for  every  247i 
grains;  but  this  was  not  the  case.  From  the  very 
first  moment  that  gold  made  its  appearance  in  Nortia 
Carolina,  up  to  the  present  time,  it  has  commanded  a 
price  in  the  market  above  the  mint  price;  that  is,  one 
ounce  of  gold  has  exchanged  for  more  than  fifteen 
ounces  of  silver,  or,  what  is  the  same  thing,  247i 
grains  of  pure  gold  have  been  exchanged  for  more 
than  ten  dollars.  We  have  no  official  data  to  refer  to, 
by  which  we  can  ascertain  precisely  the  price  at 
which  gold  has  been  sold  at  different  periods  at  the 
different  mines,  but  it  is  fair  to  presume,  that  it  was 
as  near  to  the  Philadelphia  market  price  as  it  is  now, 
and  as  it  will  hereafter  be.  If,  then,  we  can  ascertain 
what  has  been  the  Philadelphia  market  price  since  the 
year  1824,  we  shall  be  able  to  throw  some  light  on 
this  subject,  for  let  it  be  remembered,  that  whatever 
that  price  has  been,  it  has  gone  into  the  pockets  of  the 
producers  of  gold,  deducting  the  expense  of  transpor- 
tation to  Philadelphia,  where  the  mint  is  located — an 
expense  which  must  be  borne  by  them  hereafter,  as 
heretofore.  Fortunately  upon  this  point  we  have  evi- 
dence that  no  one  will  dispute,  for,  as  it  comes  from  a 
strong  advocate  of  the  gold  bill,  it  can  not  be  sus- 
pected of  unfairness. 

From  the  Washington  Globe. 

‘^The  following  statement  of  actual  sales,  made  by 
the  United  States  Bank,  will  show  how  she  has  sold 
foreign  gold: 

* q^he  precise  per  centage  is  6.681,  which  is  a fraction  more 
than  6|. 


20 


234 

APPENDIX. 

Guineas. 

Sovereigns. 

Portugues  Gold. 

per  cent. 

per  cent. 

per  cent. 

Jan.  5,  1828, 

9^ 

10 

6i 

Jan.  3,  1829, 

8i 

8^ 

5h 

Jan.  2,  1830, 

7i 

81 

Jan.  4,  1831, 

5i 

6i 

3 

Jan.  4,  1832, 

81 

81 

oi 

Jan.  3,  1833, 

7 

7 

3i 

These  are  a few  only  out  of  thousands  of  sales 
made  by  the  Bank  of  the  United  States.  They  go  as 
high  as  ten  per  cent/’ 

Here,  then,  we  see  it  shown  that  foreign  gold  has 
been  sold  by  the  Bank  of  the  United  States,  at  the 
periods  mentioned,  at  a premium  varying  from  3 to  10 
per  cent.  The  reason  why  British  gold  sold  higher 
than  Portuguese  gold,  which  is  of  the  same  standard, 
(22  carats  fine,  that  is,  1 1 parts  pure  metal  to  one  part 
alloy),  is,  that  guineas  and  sovereigns  are  cash  imme- 
diately on  their  arrival  in  England,  even  though 
somewhat  lighter  than  full  weight,  whereas,  Portu- 
guese gold  would  be  available  only  as  bullion.  Now, 
as  American  gold  coins  at  the  periods  referred  to  were 
of  the  same  standard  as  the  Portuguese,  and,  like 
them,  only  available  in  foreign  countries  as  bullion,  it 
is  fair  to  presume  that  the  price  of  American  gold 
was,  in  the  Philadelphia  market,  the  same  as  that  of 
the  Portuguese. 

It  would,  then,  appear,  that  American  gold  was 
worth,  in  Philadelphia, from  1828  to  1833,a  premium 
varying  from  3 to  6^ per  cent.,  or  upon  an  average^  a 
fraction  above  per  cent.  In  other  words,  we  see 
that  one  ounce  of  gold  has  uniformly  been  sold  for 
more  than  fifteen  ounces  of  silver,  and  in  one  case 
for  very  near  sixteen  ounces.  Now  it  must  be  appa- 
rent, that  unless  the  producer  of  gold  gets  for  his  com- 
modity at  the  mint  6 2-3  and  a fraction  per  cent,  more 
than  he  used  to  get  in  the  market,  he  is  not  a gainer 
by  the  change  to  the  extent  asserted.  But  the  new 
mint  price  is  only  6.681  per  cent,  more  than  the  old 


APPENDIX. 


235 


mint  price,  while  the  price  in  the  market,  upon  the  ave- 
rage of  years  quoted,  was  4i  per  cent,  more,  and,  of 
consequence,  the  real  advantage  to  the  producer  of 
gold  can  not  possibly  have  been  more  than  2.181  per 
cent.,  that  being  the  difference  between  the  two  rates 
of  premium. 

It  is  not  an  answer  to  these  positions  to  say,  that 
the  price  of  gold  in  the  market  since  October  1833,  in 
consequence  of  the  derangement  of  commerce  and 
the  currency,  has  been  as  low,  at  times,  as  four,  three, 
two  or  one  per  cent.,  and  even  less,  and  thus  the  bene- 
fit to  the  producer  of  gold  is  consequently  equal  to  the 
difference  between  those  rates  and  6.6S1  per  cent. 
A temporary  and  unnatural  state  of  things,  is  not  a 
basis  for  sound  conclusions,  and  can  not,  therefore,  be 
admitted  into  a discussion  of  general  principles. 

It  would  appear^  however,  that  although  the  gain 
to  the  producers  of  gold  by  the  new  law  was  not  as 
much  as  has  been  alleged,  yet  that  upon  our  own  ad- 
mission, it  was  equal  to  2.181  per  cent.  In  other 
words,  it  would  appear^  as  if  the  mint  afforded  a con- 
stant market  at  a steady  price,  2 per  cent,  and  a frac- 
tion higher  than  used  to  be  obtained  in  the  market 
under  the  old  law.  Let  us  examine  minutely  into 
this,  and  see  how  the  fact  is. 

The  old  mint  price  of  pure  gold  was  Sl9,3i),4-10 
cents  per  ounce  of  480  grains,  as  may  be  ascertained 
from  the  fact  that  247^  grains,  [the  weight  of  pure  ' 
gold  in  an  eagle  of  the  old  coinage]  was  the  equiva- 
lent by  law  of  ten  dollars.^  The  market  price,  there- 
fore, of  pure  gold  between  the  years  1828  and  1833 
at  4\  per  cent,  premium,  was  j520,26  6-10  cents  per 
ounce,  which  was,  consequently,  the  price  that  the 
producer  of  gold  used  to  get  for  his  commodity  in  the 
Philadelphia  market. 

The  new  mint  price  of  pure  gold  is  §20,69  cents  per 

* If  247 J grains  are  equal  to  ^10,  480  grains  are  equal  to 
^19,39,4. 


236 


APPENDIX. 


ounce  of  480  grains  as  may  be  ascertained  from  the 
fact  that  232  grains  (the  weight  of  pure  gold  in  an 
easrle  of  the  new  coinage)  is  the  equivalent  bv  law  of 
10  dollars. 

The  difference  between  these  two  prices  is  42  cents 
and  4-lOths  of  a cent  per  ounce,  which  is  equal  to  2 
per  cent,  and  a fraction,  and  it  thus  still  appears  that 
the  present  mint  price  is  that  much  higher  than  the 
old  market  price,  and  consequently  that  the  producer 
of  gold  gains  2 dollars  and  a fraction  on  every  100 
dollars  by  the  new  proportion. 

We  say  it  appears  so,  and  for  the  simple  reason 
that  the  fact  in  reality  is  not  so.  To  prove  this,  we 
must  ascertain  whether  the  20  dollars  69  cents  spoken 
of  as  the  present  price  of  an  ounce  of  pure  gold,  are 
the  same  kind  of  dollars  as  those  spoken  of,  where 
®20,26  6-10  are  stated  to  have  been  the  price  of  pure 
gold  under  the  old  law.  For  it  must  be  very  evident 
that  the  term  dollar  is  in  itself  no  sign  of  fixed  quan- 
tity or  value,  and  that  as  quantities  and  values  are  the 
things  regarded  in  all  sales  and  purchases,  and  not 
mere  denominations,  it  is  absolutely  necessary  that 
this  point  should  be  determined  before  any  correct 
opinion  can  be  formed. 

Under  the  old  law,  a dollar  was  represented  by  a 
silver  coin  containing  416  grains  of  standard  silver, 
or,  by  24  grains  and  75-100  of  a grain  of  pure  gold, 
that  being  the  tenth  part  of  the  quantity  of  pure  gold 
contained  in  an  eagle  of  the  old  coinage. 

A dollar  under  the  new  law  is  represented  also  by 
416  grains  of  standard  silver,  or,  by  23  grains  and  20- 
100  of  a grain  of  pure  gold,  that  being  the  tenth  part 
of  the  quantity  of  pure  gold  contained  in  an  eagle  of 
the  new  coinage. 

It  thus  appears  that  the  dollar  spoken  of  at  the  two 
different  periods,  contains  the  same  quantity  of  silver, 
but  a different  quantity  of  gold,  and  it  is  therefore  evi- 

* If 232  grains  are  equal  to  ^10,  480  grains  are  equal  to  g20,69. 


APPENDIX. 


237 


dent  that  the  producer  of  gold,  when  he  sells  one 
ounce  of  that  metal  for  silver  coins,  gets  2 per  cent, 
and  a fraction  more  than  he  used  to  get,  but  when  he 
sells  it  for  gold  coins  he  gets  only  the  same  quantity  of 
gold  that  he  used  to  get.  For,  in  the  first  case,  he 
gets  for  his  ounce  20  dollars  69-100  of  a dollar,  each 
weighing  416  grains  standard  silver,  that  is  8607 
grains,  instead  of  20  dollars  and  26-100  of  a dollar 
and  a fraction,  that  is  8430  grains  standard  silver,  the 
price  he  used  to  get;  and  in  the  second  case  he  gets 
for  his  ounce  a number  of  gold  coins  of  a particular 
weight,  and  standard,  which  contain  480  grains  of 
pure  gold  (that  being  what  the  mint  is  obliged  to  give 
for  an  ounce  of  pure  gold)  instead  of  a number  of  gold 
coins  of  a different  weight  and  standard,  but  contain- 
ing precisely  the  same  number,  that  is,  480  grains  of 
pure  gold,  which  he  could  have  received  at  the  mint, 
had  he  taken  it  there,  in  preference  to  selling  his  gold 
in  the  market. 

But  it  may  be  said,  that  although  this  be  true,  that 
is,  although  it  be  true  that  the  producer  of  gold  can 
get  no  more  pure  gold  in  coin  for  an  ounce  of  pure 
gold  in  bullion,  under  the  new  law,  than  he  used  to 
get  under  the  old  law,  yet  that  with  his  480  grains  of 
pure  gold  in  coin,  received  at  the  mint  for  one  ounce 
of  pure  gold,  he  can  procure  from  the  banks  or  from 
individuals,  8607  grains  of  standard  silver,  so  that  it 
amounts  to  the  same  thing  whether  he  sells  his  ounce 
of  metal  for  gold  or  silver.  This  would  be  true  un- 
questionably, if  the  fact  were  as  supposed  that  8607 
grains  of  standard  silver  could  be  permanently  pur- 
chased for  480  grains  of  pure  gold.  That  it  can  be 
thus  purchased,  at  this  time,  will  not  be  denied,  but 
that  it  can  permanently  remain  procurable  at  that 
rate,  is  not  admitted.  It  is  not  possible  for  two  metals, 
long  to  circulate  interchangeably  at  a le»al  equiva- 
lency, if  there  be  not  at  the  same  time,  a market 
equivalency.  The  dearer  one  will  inevitably  be  ex- 
ported whenever  the  course  of  trade  leads  to  the  ex- 


238 


APPENDIX. 


portation  of  coin,  leaving  the  cheaper  one  to  supply 
the  channels  of  circulation.  Thus  in  the  case  before 
us,  whenever  exchange  shall  rise  so  high  as  to  render 
it  more  profitable  for  an  importing  merchant  to  ex- 
port bullion  than  to  buy  a bill,  he  will  export  silver, 
as  being  more  valuable  abroad,  in  consequence  of  its 
being  undervalued  at  home,  and  on  the  other  hand, 
whenever  the  Pourse  of  trade  invites  the  importation 
of  bullion,  gold  will  be  imported,  because  it  is  over- 
valued by  our  laws.  Nothing  indeed  can  prevent  in 
process  of  time  the  almost  complete  draining  of  the 
country  of  all  its  large  silver  coins  of  full  weight  under 
the  present  law,  if  the  relative  value  of  gold  and  sil- 
ver in  the  market  of  the  trading  world,  should  con- 
tinue the  same  as  it  now  is,  or  fall  back  towards  the 
old  proportion  of  1 to  15. 

A gold  standard  then  instead  of  a silver  one,  may 
be  fairly  considered  as  the  one  which  must  ultimately 
prevail  in  the  United  States,  and  consequently  the 
gold  dollar  of  23  2-10  grains  of  fine  gold,  and  not  the 
silver  dollar  of  416  grains  standard  silver  will  be  the 
money  of  account,  and  coin  in  which  bank  notes  will 
be  payable.  When  this  state  of  things  then  arrives, 
what  will  the  producer  of  gold  in  the  southern  states 
have  gained  by  the  change  in  the  relative  value  of 
gold  and  silver?  Positively  nothing.  He  will  not 
be  enabled  to  exchange  an  ounce  of  gold  for  any 
more  commodities  than  he  used  to  do  before  the  alter- 
ation of  the  coinage. — ’When  people  sell  goods  for 
gold,  they  sell  them  for  specific  quantities  of  gold, 
and  not  for  the  jingle  it  will  make,  or,  for  any  title  it 
may  bear.  If  a law  were  to  declare  that  a dollar^ 
instead  of  containing  416  grains  of  standard  silver, 
should  contain  but  half  the  quantity,  that  is,  208 
grains,  and  should  be  a legal  tender  at  that  weight, 
the  consequence  would  be,  that  every  man  who  had 
an  article  for  sale  worth  one  dollar  before  the  enact- 
ment of  the  law,  would  refuse  to  sell  it  for  less  than 
two  dollars.  The  same  would  be  the  case,  whatever 


APPENDIX. 


239 


the  diminution  of  weight  might  be.  If  5 per  cent, 
were  deducted  from  the  weight  of  coins,  all  commo- 
dities would  rise  in  price  5 per  cent.  Nobody  would 
gain  by  the  change,  except  the  class  of  debtors  owing 
money  at  the  time,  and  nobody  would  lose,  but  the 
class  of  creditors,  the  former  by  being  enabled  to  dis- 
charge a debt  with  less  metal  than  they  had  con- 
tracted to  pay,  and  the  latter  by  being  compelled  to 
accept  it.  But  all  new  contracts  and  engagements 
would  have  reference  to  the  new  coins,  which  would 
possess  a value  precisely  in  proportion  to  the  quantity 
of  pure  metal  contained  in  them. 

It  may,  however,  be  thought  that  during  the  time 
which  must  elapse  before  the  standard  is  changed 
from  silver  to  gold,  by  the  expulsion  of  the  silver,  the 
producer  of  gold  would  be  benefitted  to  the  extent  of 
two  per  cent,  and  a fraction,  by  his  ability  to  obtain 
8607  grains  of  standard  silver  for  an  ounce  of  pure 
gold.  But  this  is  not  so,  for  the  effect  of  the  law  is  to 
depreciate  the  value  of  the  silver  down  to  the  level 
of  the  gold,  for,  let  it  be  remembered,  that  to  increase 
the  price  of  gold,  which  was  the  design  of  the  gold 
bill,  is  to  decrease  the  price  of  silver.  The  law  which 
says,  that  a number  of  gold  coins  which  contain  one 
ounce  of  pure  gold,  shall  pass  for  no  more  than 
the  number  of  silver  coins  that  contain  8607  grains 
of  standard  silver,  at  the  same  time  declares,  that  the 
number  of  silver  coins  which  contain  8607  grains  of 
standard  silver  shall  pass  for  no  more  than  the  num- 
ber of  gold  coins  that  contain  one  ounce  of  pure  gold. 
So  loi]g,  therefore,  as  the  two  metals  circulate  inter- 
changeably, the  one  possesses  no  more  value  in  ex- 
change, than  the  other,  and  consequently,  a number 
of  coins  containing  8607  grains  of  standard  silver, 
will  purchase  no  more  than  a number  of  coins  con- 
taining one  ounce  of  pure  gold.  It  is  only  for  ex- 
portation, or  consumption  in  manufactures,  that  the 
silver  would  possess  the  superior  value  referred  to, 
and  this  superior  value  would  benefit  only  the  ex- 


240 


APPENDIX. 


porting  merchant,  and  not  the  producer  of  gold.  It 
is  true,  however,  that  after  silver  should  have  become 
scarce,  it  would  command  a premium  in  the  market, 
as  gold  used  to  do,  in  which  case  8607  grains  of 
standard  would  no  longer  be  procurable  for  one  ounce 
of  pure  gold,  and  consequently  the  producer  of  gold 
would  not  have  even  the  shadow  of  a benefit  from 
the  change. 

Is  there  then  no  advantage  to  result  to  the  southern 
producers  of  gold,  from  the  operations  of  the  measures 
of  the  great  alchymists  who  have  brought  back  the 
golden  age?  We  reply,  none  whatever,  except  that  tri- 
fling and  almost  inappreciable  one  to  which  we  advert- 
ed at  the  commencement  of  this  article,  arising  from  the 
fact,  that  a new  demand  for  gold  has  been  created  by 
its  adoption  as  the  American  standard.  What  this 
will  amount  to  must  be  conjectural,  but  we  should 
suppose,  when  we  advert  to  the  actual  stock  of  gold 
coin  and  bullion  now  in  existence  in  Europe,  Asia, 
Africa,  North  and  South  America,  the  accumulation 
of  centuries,  that  the  demand  for  the  American  mar- 
ket can  have  no  'perceptible  influence  in  raising  the 
value  of  the  whole  mass. — Whatever  that  rise  may 
be,  however,  it  will  go  to  the  benefit  of  the  domestic 
producer  of  gold,  but  that  is  all  he  will  derive  from  a 
measure  fraught  with  infinite  mischief  to  the  country, 
and  accompanied  by  a breach  of  the  public  faith. 


After  writing  the  foregoing  article,  we  were  fur- 
nished by  a respectable  broker  of  this  city,  with  a 
statement  of  the  price  of  American  gold,  during  the 
years  for  which  we  have  above  given  the  prices  of 
foreign  gold,  which  is  as  follows: 


NOTE. 


Buying  price, 
per  cent.  prem. 


Selling  price, 
per  cent.  prem. 


1828,  Jan.  19,  5 to  52 

1829,  1,  5 to  6 

1830,  1,  to  4i 


7 

5 


APPENDIX. 


241 


1831,  1,  2^0  3 4 to  5 

1832,  13,  2i  34 

An  average  of  these  rates  is  3S  for  the  buying 
price,  and  5 per  cent,  for  the  selling  price,  giving  a 
medium  of  4|  per  cent,  which  is  sufficiently  near  to 
44  per  cent,  for  our  purpose. 


21 


CONDENSED  STATEMENT  OF  THE  CONDITION  OF  ALL  THE  BANKS  IN  THE  UNITED  STATES,  AT 


242 


APPENDIX. 


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APPENDIX. 


243 


D. 


THE  NEW  YORK  GENERAL  BANKING  LAW. 

AN  ACT  TO  AUTHORISE  THE  BUSINESS  OP  BANKING  PASS- 
ED APRIL  18^  1838. 

The  'people  of  the  State  of  New  York,  represented  in 
senate  and  assembly,  do  enact  as  follows: 

§ 1.  The  comptroller  is  hereby  authorised  and  re- 
quired to  cause  to  be  engraved  and  printed  in  the  best 
manner,  to  guard  against  counterfeiting,  such  quantity 
of  circulating  notes,  in  the  similitude  of  bank  notes  in 
blank,  of  the  different  denominations  authorised  to  be 
issued  by  the  incorporated  banks  of  this  state,  as  he 
may  from  time  to  time  deem  necessary  to  carry  into 
effect  the  provisions  of  tliis  act,  and  of  such  form  as  he 
may  prescribe.  Such  blank  circulating  notes  shall  be 
countersigned,  numbered,  and  registered,  in  proper 
books  to  be  provided  and  kept  for  that  purpose  in  the 
office  of  said  comptroller,  under  his  direction,  by  such 
person  or  persons  as  the  said  comptroller  shall  appoint 
for  that  purpose;  so  that  each  denomination  of  such 
notes  circulating  shall  all  be  of  the  same  similitude  and 
bear  the  uniform  signature  of  such  register;  or  one 
of  such  registers. 

§ 2.  Whenever  any  person  or  association  of  persons, 
formed  for  the  purpose  of  banking  under  the  provis- 
ions of  this  act,  shall  legally  transferto  the  comptroller 
any  portion  of  the  public  debt  now  created  or  hereafter 
to  be  created  by  the  United  Stales  or  by  this  state,  or 
such  other  states  of  the  United  States  as  shall  be  ap- 
proved by  the  comptroller,  such  person  or  associa- 
tion of  persons  shall  be  entitled  to  receive  from  the 
comptroller  an  equal  amount  of  such  circulating  notes 


244 


APPENDIX. 


of  different  denominations,  registered  and  countersign- 
ed as  aforesaid;  but  such  public  debt  shall  in  all  cases 
be,  or  be  made  to  be,  equal  to  a stock  of  this  state, 
producing  five  per  cent,  per  annum,  and  it  shall  not 
be  lawful  for  the  comptroller  to  take  any  stock  at  a 
rate  above  its  par  value. 

§ 3.  Such  person  or  association  of  persons  are  here- 
by authorised,  after  having  executed  and  signed  such 
circulating  notes  in  the  manner  required  by  law,  to 
make  them  obligatory  promissory  notes  payable  on 
demand,  at  the  place  of  business  within  this  state,  of 
such  person  or  association,  to  loan  and  circulate  the 
same  as  money  according  to  the  ordinary  course  of 
banking  business  as  regulated  by  the  laws  and  usages 
of  this  state. 

§ 4.  In  case  the  maker  or  makers  of  any  such  circu- 
lating notes  countersigned  and  registered  as  aforesaid, 
shall  at  any  time,  hereafter,  on  lawful  demand  during 
the  usual  hours  of  business,  between  the  hours  of  ten 
and  three  o’clock,  at  the  place  where  such  note  is  pay- 
able, fail  or  refuse  to  redeem  such  note  in  the  lawful 
money  of  the  United  States,  the  holder  of  such  note 
making  such  demand  may  cause  the  same  to  be  pro- 
tested for  non-payment  by  a notary  public,  under  his 
seal  of  office  in  the  usual  manner;  and  the  comptroller 
on  receiving  and  filing  in  his  office  such  protest,  shall 
forthwith  give  notice  in  writing  to  the  maker  or  makers 
of  such  note  to  pay  the  same;  and  if  he  or  they  shall 
omit  to  do  so  for  ten  days  after  such  notice,  the  comp- 
troller shall  immediately  thereupon,  (unless  he  shall 
be  satisfied  that  there  is  a good  and  legal  defence 
against  the  payment  of  such  note  or  notes,)  give  no- 
tice in  the  state  paper  that  all  the  circulating  notes  is- 
sued by  such  person  or  association  will  be  redeemed 
out  of  the  trust  funds  in  his  hands  for  that  purpose; 
and  it  shall  be  lawful  for  the  comptroller  to  apply  the 
said  trust  funds  belonging  to  the  maker  or  makers  of 
such  protested  notes  to  the  payment  and  redemption 
of  such  notes,  with  costs  of  protest,  and  to  adopt  such 


APPENDIX. 


245 


measures  for  the  payment  of  all  such  circulating  notes 
put  in  circulation  by  the  maker  or  makers  of  such  pro- 
tested notes,  pursuant  to  the  provisions  of  this  act  as 
will  in  his  opinion  most  effectually  prevent  loss  to  the 
holders  thereof. 

§ 5.  The  comptroller  may  give  to  any  person  or  as- 
sociation of  persons,  so  transferring  stock  in  pursuance 
of  the  provisions  of  this  act,  powers  of  attorney  to  re- 
ceive interest  or  dividends  thereon,  which  such  person 
or  association  may  receive  and  apply  to  their  own 
use;  but  such  powers  may  be  revoked  upon  such  per- 
son or  association  failing  to  redeem  the  circulating 
notes  so  issued,  or  whenever,  in  the  opinion  of  the 
comptroller,  the  principal  of  such  stock  shall  become 
an  insufficient  security;  and  the  said  comptroller,  upon 
the  application  of  the  owner  or  owners  of  such  trans- 
ferred stock  in  trust,  may,  in  his  discretion,  change  or 
transfer  the  same  for  other  stocks  of  the  kind  before 
specified  in  this  act,  or  may  retransfer  the  said  stocks 
or  any  part  thereof,  or  the  mortgages,  or  any  of  them 
hereinafter  mentioned  and  provided  for,  upon  receiving 
and  cancelling  an  equal  amount  of  such  circulating 
notes  delivered  by  him  to  such  person  or  association, 
in  such  manner  that  the  circulating  notes  shall  always 
be  secured  in  full  either  by  stocks  or  by  stocks  and 
mortgages,  as  in  this  act  provided. 

§ 6.  The  bills  or  notes  so  to  be  countersigned,  and 
the  payment  of  which  shall  be  so  secured  by  the  trans- 
fer of  public  stocks,  shall  be  stamped  on  their  face, 
Secured  by  the  pledge  of  public  stocks.’^ 

§ 7.  Instead  of  transferring  public  stocks  as  aforesaid 
to  secure  the  whole  amount  of  such  bills  or  notes,  it 
shall  be  lawful  for  such  person  or  association  of  per- 
sons, in  case  they  shall  so  elect  before  receiving  any 
of  the  said  bills  or  notes,  to  secure  the  payment 
of  one  half  of  the  whole  amount  so  to  be  issued,  by 
transferring  to  the  comptroller  bonds  and  mortgages 
upon  real  estate,  bearing  at  least  six  per  cent,  interest 
of  this  state,  payable  annually  or  semi-annually;  in 
21^ 


246 


APPENDIX. 


which  case  all  such  bills  or  notes  issued  by  the  said 
person  or  association  of  persons,  shall  be  stamped  on 
their  face,  Secured  by  pledge  of  public  stocks  and 
real  estate.” 

§8.  Such  mortgages  shall  be  only  upon  improved, 
productive,  unincumbered  lands  within  this  stale, 
worth,  independently  of  any  buildings  thereon,  at 
least  double  the  amount  for  which  they  shall  be  so 
mortgaged;  and  the  comptroller  shall  prescribe  such 
regulations  for  ascertaining  the  title  and  the  value 
of  such  lands  as  he  may  deem  necessary;  and  such 
mortgages  shall  be  payable  within  such  time  as  the 
comptroller  may  direct. 

§ 9.  The  comptroller  may,  in  his  discretion,  reas- 
sign the  said  bonds  and  mortgages,  or  any  of  them,  to 
the  person  or  association  who  transferred  the  same, 
on  receiving  other  approved  bonds  and  mortgages  of 
equal  amount;  and  when  any  sum  of  the  principal  of 
the  bonds  and  mortgages  transferred  to  the  comptroller 
shall  be  paid  to  him,  he  shall  notify  the  person  or  as- 
sociation that  transferred  the  bonds  and  mortgages  of 
such  payment,  and  may  pay  the  same  to  such  person 
or  association  on  receiving  other  approved  bonds  and 
mortgages  of  equal  amount. 

§ 10.  The  person  or  association  of  persons  assigning 
such  bonds  and  mortgages  to  the  comptroller,  may 
receive  the  annual  interest  to  accrue  thereon,  unless 
default  shall  be  made  in  paying  the  bills  or  notes  to 
be  countersig?>ed‘  as  aforesaid,  or  unless  in  the  opinion 
of  the  comptroller  the  bonds  and  mortgages  or  stocks 
so  pledged  shall  become  an  insufficient  security  for  the 
payment  of  such  bills  or  notes. 

§ 11.  In  case  such  person  or  association  of  persons, 
shall  foil  or  refuse  to  pay  such  bills  or  notes  on  de- 
mand in  the  manner  specified  in  the  4th  section  of 
this  act,  the  comptroller,  after  the  ten  days’  notice 
therein  mentioned,  may  proceed  to  sell  at  public  auc- 
tion, the  public  stocks  so  pledged  or  the  bonds  and 
mortgages  so  assigned,  or  any  or  either  of  them,  and 


APPENDIX. 


247 


out  of  the  proceeds  of  such  sale  shall  pay  and  cancel 
the  said  bills  or  notes,  default  in  paying  which  shall 
have  been  made  as  aforesaid;  but  nothing  in  this  act 
contained  shall  be  considered  as  implying  any  pledge 
on  the  part  of  the  state  for  the  payment  of  said  bills  or 
notes,  beyond  the  proper  application  of  the  securities 
pledged  to  the  comptroller  for  their  redemption. 

§ 12.  The  public  debt,  and  bonds,  and  mortgages, 
to  be  deposited  with  the  comptroller  by  any  such  per- 
son or  association,  shall  be  held  by  him  exclusively 
for  the  redemption  of  the  bills  or  notes  of  such  person 
or  association  put  in  circulation  as  money,  until  the 
same  are  paid. 

§ 13.  The  plates,  dies,  and  materials  to  be  procured 
by  the  comptroller  for  the  printing  and  making  of  the 
circulating  notes  provided  for  hereby,  shall  remain  in 
his  custody  and  under  his  direction;  and  the  expenses 
necessarily  incurred  in  executing  the  provisionsof  this 
act,  shall  be  audited  and  settled  by  the  comptroller, 
and  paid  out  of  any  moneys  in  the  treasury  not  other- 
wise appropriated;  and  for  the  purpose  of  reimbur- 
sing the  same,  the  said  comptroller  is  hereby  autho- 
rised and  required  to  charge  against  and  receive  from 
such  person  or  association  applying  for  such  circula- 
ting notes,  such  rate  per  cent,  thereon  as  may  be  suf- 
ficient for  that  purpose,  and  as  may  be  just  and  rea- 
sonable. 

§ 11.  It  shall  not  be  lawful  for  the  comptroller,  or 
other  officer,  to  countersign  bills  or  notes  for  any  per- 
son or  association  of  persons,  to  an  amount  in  the  ag- 
gregate exceeding  the  public  debt,  or  public  debt  and 
bonds  and  mortgages  at  their  value,  as  provided  in  the 
2d  section  of  this  act,  deposited  with  tlie  comptroller 
by  such  person  or  association;  and  any  comptroller 
or  other  officer  who  shall  violate  the  provisions  of 
this  section,  shall,  upon  conviction,  be  adjudged  guilty 
of  a misdemeanor,  and  shall  be  punished  by  a fine 
not  less  than  five  thousand  dollars,  or  be  imprisoned 
not  less  than  five  years,  or  by  both  such  fine  and  im- 
prisonment. 


248 


APPENDIX. 


§ 15.  Any  number  of  persons  may  associate  to  es- 
tablish offices  of  discount,  deposite,  and  circulation, 
upon  the  terms  and  conditions,  and  subject  to  the  lia- 
bilities prescribed  in  this  act;  but  the  aggregate 
amount  of  the  capital  stock  of  any  such  association 
shall  not  be  less  than  one  hundred  thousand  dollars. 

§ 16.  Such  persons,  under  their  hands  and  seals, 
shall  make  a certificate  which  shall  specify: — 

1.  The  name  assumed  to  distinguish  such  associa- 
tion, and  to  be  used  in  its  dealings. 

2.  The  place  where  the  operations  of  discount  and 
deposite  of  such  association  are  to  be  carried  on,  de- 
signating the  particular  city,  town,  or  village. 

3.  The  amount  of  the  capital  stock  of  such  associ- 
ation, and  the  number  of  shares  into  which  the  same 
shall  be  divided. 

4.  The  names  and  places  of  residence  of  the  share- 
holders, and  the  number  of  shares  held  by  each  of 
them  respectively. 

5.  The  period  at  which  such  association  shall  com- 
mence and  terminate;  which  certificate  shall  be  proved 
or  acknowledged  and  recorded  in  the  office  of  the  clerk 
of  the  county  where  any  office  of  such  association 
shall  be  established,  and  a copy  thereof  filed  in  the 
office  of  the  secretary  of  state. 

§ 17.  The  certificate  required  by  the  last  preced- 
ing section  to  be  recorded  and  filed  in  the  office  of  the 
clerk  of  the  county  and  secretary  of  state  as  afore- 
said, or  copies  thereof,  duly  certified  by  either  of  those 
officers,  may  be  used  as  evidence  in  all  courts  and 
places  for  and  against  any  such  association. 

§ 18.  Such  association  shall  have  power  to  carry  on 
the  business  of  banking,  by  discounting  bills,  notes, 
and  other  evidences  of  debt;  by  receiving  deposiles; 
by  buying  and  selling  gold  and  silver  bullion,  foreign 
coins  and  bills  of  exchange  in  the  manner  specified  in 
their  articles  of  association  for  the  purpose  authorised 
by  this  act;  by  loaning  money  on  real  and  personal 
security;  and  by  exercising  such  incidental  powers  as 


APPENDIX. 


249 


shall  be  necessary  to  carry  on  such  business;  to  choose 
one  of  their  number  as  president  of  such  association, 
and  to  appoint  a cashier,  and  such  other  officers  and 
agents  as  their  business  may  require,  and  to  remove 
such  president,  cashier,  officers  and  agents  at  pleasure, 
and  appoint  others  in  their  place. 

§ 19.  The  shares  of  said  association  shall  be  deemed 
personal  property,  and  shall  be  transferable  on  the 
books  of  the  association  in  such  manner  as  may  be 
agreed  on  in  the  articles  of  association,  and  every 
person  becoming  a shareholder  by  such  transfer,  shall, 
in  proportion  to  his  shares,  succeed  to  all  the  rights  and 
liabilities  of  prior  shareholders;  and  no  change  shall  be 
made  in  the  articles  of  association,  by  which  the  rights, 
remedies,  or  security  of  its  existing  creditors  shall  be 
weakened  or  impaired.  Such  association  shall  not  be 
dissolved  by  the  death  or  insanity  of  any  of  the 
shareholders  therein. 

§ 20.  It  shall  be  lawful  for  any  association  of  per- 
sons organised  under  this  act  by  their  articles  of  asso- 
ciation, to  provide  for  an  increase  of  their  capital  and 
of  the  number  of  the  associates,  from  time  to  time,  as 
they  may  think  proper. 

§21.  Contracts  made  by  any  such  association,  and 
all  notes  and  bills  by  them  issued  and  put  in  circula- 
tion as  money,  shall  be  signed  by  the  president  or 
vice  president  and  cashier  thereof;  and  allsuits,  actions, 
and  proceedings  brought  or  prosecuted  by  or  on  be- 
half of  such  association,  may  be  brought  or  prosecu- 
ted in  the  name  of  the  president  thereof;  and  no  such 
suit,  action,  or  proceeding,  shall  abate  by  reason  of 
the  death,  resignation,  or  removal  from  office  of  such 
president,  but  may  be  continued  and  prosecuted  ac- 
cording to  such  rule  as  the  courts  of  law  or  equity 
may  direct,  in  the  name  of  his  successor  in  office, 
who  shall  exercise  the  powers,  enjoy  the  rights,  and 
discharge  the  duties  of  his  predecessor. 

§ 22.  All  persons  having  demands  against  any  such 
association,  may  maintain  actions  against  the  presi- 


250 


APPENDIX. 


dent  thereof;  which  suits  or  actions  shall  not  abate  by 
reason  of  the  death,  resignation,  or  removal  from 
office  of  such  president,  but  may  be  continued  and 
prosecuted  to  judgment  against  his  successor;  and  all 
judgments  and  decrees  obtained  or  rendered  against 
such  president  for  any  debt  or  liability  of  such  asso- 
ciation, shall  be  enforced  only  against  the  joint  pro- 
perty of  the  association,  and  which  property  shall  be 
liable  to  be  taken  and  sold  by  execution  under  any 
such  judgment  or  decree. 

§ 23.  No  shareholder  of  any  such  association  shall 
be  liable  in  his  individual  capacity  for  any  contract, 
debt,  or  engagement  of  such  association,  unless  the 
articles  of  association  by  him  signed  shall  have  de- 
clared that  the  shareholder  shall  be  so  liable. 

§ 24.  It  shall  be  lawful  for  such  association  to  pur- 
chase, hold,  and  convey  real  estate  for  the  following 
purposes: — 

1.  Such  as  shall  be  necessary  for  its  immediate  ac- 
commodation in  the  convenient  transaction  of  its  busi- 
ness; or 

2.  Such  as  shall  be  mortgaged  to  it  in  good  faith, 
by  way  of  security  for  loans  made  by,  or  moneys  due 
to  such  association;  or 

3.  Such  as  shall  be  conveyed  to  it  in  satisfaction 
of  debts  previously  contracted  in  the  course  of  its 
dealings;  or 

4.  Such  as  it  shall  purchase  at  sales  under  judg- 
ments, decrees,  or  mortgages  held  by  such  association. 

5.  The  said  association  shall  not  purchase,  hold,  or 
convey  real  estate  in  any  other  case  or  for  any  other 
purpose;  and  all  conveyances  of  such  real  estate  shall  be 
made  to  the  president,  or  such  other  officer  as  shall  be 
indicated  for  that  purpose  in  the  articles  of  association; 
and  which  president  or  officer,  and  his  successors, 
from  time  to  time,  may  sell,  assign,  and  convey  the 
same,  free  from  any  claim  thereon,  against  any  of  the 
shareholders,  or  any  person  claiming  under  them. 

§ 25.  Upon  the  application  of  creditors  or  share- 


APPENDIX. 


251 


holders  of  any  such  association,  whose  debts  or  shares 
shall  amount  to  one  thousand  dollars,  and  stating 
facts,  verified  by  affidavit,  the  chancellor  may,  in  his 
discretion,  order  a strict  examination  to  be  made  by 
one  of  the  masters  of  his  court  of  all  the  affairs  of 
such  association,  for  the  purpose  of  ascertaining  the 
safety  of  its  investments,  and  the  prudence  of  its  ma- 
nagement; and  the  result  of  every  such  examination, 
together  with  the  opinion  of  the  master  and  of  the 
chancellor  thereon,  shall  be  published  in  such  manner 
as  the  chancellor  shall  direct,  who  shall  make  such 
order  in  respect  to  the  expenses  of  such  examination 
and  publication  as  he  may  deem  proper. 

§ 26.  Such  association  shall  on  the  first  Mondays 
of  January  and  July  in  every  year  after  having  com- 
menced the  business  of  banking  as  prescribed  by  this 
act,  make  out  and  transmit  to  the  comptroller,  in  the 
form  to  be  provided  by  him,  a full  statement  of  the 
affairs  of  the  association,  verified  by  the  oath  of  the 
president  or  cashier,  which  statement  shall  contain 

1.  The  amount  of  the  capital  stock  paid  in  accord- 
ing to  the  provisions  of  this  act,  or  secured  to  be  paid. 

2.  The  value  of  the  real  estate  of  the  association, 
specifying  what  portion  is  occupied  by  the  associa- 
tion as  necessary  to  the  transaction  of  its  business. 

3.  The  shares  of  stock  held  by  such  association; 
whether  absolutely  or  as  collateral  security;  specify- 
ing each  kind  and  description  of  stock,  and  the  num- 
ber and  value  of  the  shares  of  each. 

4.  The  amount  of  debts  due  to  the  association, 
specifying  such  as  are  due  from  monied  or  other  cor- 
porations or  associations;  and  also  specifying  the 
amount  secured  by  bond  and  mortgage  or  judgment; 
and  the  amount  which  ought  to  be  included  in  the 
computation  of  losses. 

5.  The  amount  of  debts  due  by  such  association; 
specifying  such  as  are  payable  on  demand,  and  such 
as  are  due  to  monied  or  other  corporations  or  asso- 
ciations. 


252 


APPENDIX. 


6.  The  amount  of  claims  against  the  association 
not  acknowledged  by  its  debts. 

7.  Tlie  amount  of  notes,  bills,  or  other  evidences 
of  debt,  issued  by  such  association. 

8.  The  amount  of  the  losses  of  the  association; 
specifying  whether  charged  on  its  capital  or  profits, 
since  its  last  preceding  statements,  and  of  its  dividends 
declared  and  made  during  the  same  period. 

9.  The  average  amount  in  each  month  during  the 
preceding  six  months  of  the  debts  due  to  and  from 
the  association;  the  average  amount  of  specie  posses- 
sed by  the  same  during  each  month,  and  the  amount 
of  bills  and  notes  issued  by  such  association  and  put 
in  circulation  as  money,  and  outstanding  against  the 
association,  on  the  first  day  of  each  of  the  preceding 
six  months. 

10.  The  average  amount  in  each  month  during 
the  preceding  six  months  due  to  the  association,  from 
all  the  shareholders  in  the  association;  also  the  great- 
est amount  due  the  association  in  eacii  of  the  said 
preceding  six  months,  from  all  the  shareholders  in 
such  association. 

11.  The  amount  which  the  capital  of  the  said  as- 
sociation has  been  increased  during  the  preceding  six 
months,  if  there  shall  have  been  any  increase  of  the 
said  capital;  and  the  names  of  any  persons  who  may 
become  parties  to  the  said  articles  of  association,  or 
may  have  withdrawn  therefrom  since  their  last  re- 
port. 

It  shall  be  the  duty  of  the  comptroller  to  cause  the 
statement  required  to  be  made  by  this  section,  to  be 
published  in  a newspaper  printed  in  the  county 
where  the  place  of  business  of  such  association  is 
situate,  and  in  the  state  paper;  the  expense  of  which 
shall  be  paid  by  such  association. 

§ 27.  If  such  association  shall  neglect  to  make  out 
and  transmit  the  statement  required  in  the  last  pre- 
ceding section,  for  one  month  beyond  the  period  when 
the  same  is  required  to  be  made,  or  shall  violate  any 


APPENDIX. 


253 


of  the  provisions  of  this  act,  such  association  may  be 
proceeded  against  and  dissolved  by  the  court  of  chan- 
cery, in  the  same  manner  as  any  moneyed  corporation 
may  be  proceeded  against  and  dissolved. 

§ 28.  If  any  portion  of  the  original  capital  of  any 
such  association  shall  be  withdrawn  for  any  purpose 
whatever  whilst  any  debts  of  the  association  remain 
unsatisfied,  no  dividends  or  profits  on  the  shares  of  the 
capital  stock  of  the  association  shall  thereafter  be 
made  until  the  deficit  of  capital  shall  have  been  made 
good,  either  by  subscription  of  the  shareholders,  or 
out  of  the  subsequently  accruing  profits  of  the  asso- 
ciation; and  if  it  shall  appear  that  any  such  dividends 
have  been  made,  it  shall  be  the  duty  of  the  chancel- 
lor to  make  the  necessary  orders  and  decrees  for 
closing  the  affairs  of  the  association,  and  distributing 
its  property  and  effects  among  its  creditors  and  share- 
holders. 

§ 29.  Such  association  shall  be  liable  to  pay  the 
holder  of  every  bill  or  note  put  in  circulation  as  mo- 
ney, the  payment  of  which  shall  have  been  demanded 
and  refused,  damages  for  non-payment  thereof,  in 
lieu  of  interest,  at  and  after  the  rate  of  fourteen  per 
cent,  per  annum,  from  the  time  of  such  refusal  until 
the  payment  of  such  evidence  of  debt,  and  the  dama- 
ges thereon. 

§ 30.  The  president  and  cashier  of  every  association 
formed  pursuant  to  the  provisions  of  this  act,  shall  at 
all  times  keep  a true  and  correct  list  of  the  names  of 
the  shareholders  of  such  association,  and  shall  file  a 
copy  of  such  list  in  the  office  of  the  clerk  of  the  county 
where  any  office  of  such  association  may  be  located, 
and  also  in  the  office  of  the  comptroller,  (^n  the  first 
Mondays  of  January  and  July  in  every  year. 

§ 31.  It  shall  not  be  lawful  for  any  association 
formed  under  the  provisions  of  this  act,  to  make  any 
of  its  bills  or  notes  of  a denomination  less  than  one 
thousand  dollars,  to  be  put  in  circulation  as  money, 
payable  at  any  other  place  than  at  the  office  where 
22 


254 


APPENDIX. 


the  business  of  the  association  is  carried  on  and  con- 
ducted. 

§ 32.  The  legislature  may  at  any  time  alter  or  re- 
peal this  act. 

§ 33.  No  association  of  persons  authorised  to  carry 
on  the  business  of  banking  under  this  act,  shall  at  any 
time,  for  the  space  of  twenty  days,  have  on  hand  at 
their  place  of  business,  less  than  twelve  and  a half 
per  cent,  in  specie  on  the  amount  of  the  bills  or  notes 
in  circulation  as  money. 

State  of  New  York^  Secretary's  Office, 

This  bill  having  been  approved  and  signed  by  the  go- 
vernor of  this  state,  on  the  18th  of  April,  1838,1  do  here- 
by certify  that  the  same  became  a law  on  that  day. 

John  A.  Dix,  Secretary  of  State, 
[See  Appendix  J.] 


E. 


LETTER  FROM  THE  AUTHOR  TO  JOHN  W.  COWELL,  ESQ., 
AGENT  OF  THE  BANK  OF  ENGLAND  IN  THE  UNITED 
STATES. 

Philadelphia^  %/lpril  15,  1839. 

My  DEAR  Sir: 

As  you  are  upon  the  eve  of  departure  for  England, 
after,  as  I understand,  a highly  successful  issue  to 
your  financial  mission  to  this  country,  I take  occasion 
to  hand  you  a copy  of  the  ‘‘  Treatise  on  Currency 
and  Banking,’^  of  which  you  have  seen  a few  of  the 
early  chapters,  in  the  hopes  that  you  will  find  them, 
in  the  main,  in  accordance  with  your  own  views  of 
those  important  subjects.  I am  the  more  inclined  to 
this  expectation,  from  recollecting  the  tenor  of  the 


APPENDIX. 


255 


frequent  conversations  I have  had  with  you,  from 
which  I need  hardly  say,  I derived  much  valuable, 
instructive,  and  practical  information,  as  well  as  from 
a perusal  of  the  unpublished  pamphlet,  with  a copy 
of  which  you  favored  me,  setting  forth  your  indivi- 
dual opinions  upon  the  best  system  of  reform  for  the 
paper  currency  of  England. 

In  regard  to  the  latter  subject,  I am  free  to  confess, 
that  the  United  States  have  a deep  interest  in  its  dis- 
cussioiij  and  they  will  o we  much  to  the  political  econo- 
mist or  statesman,  who  shall  be  so  fortunate,  as  suc- 
cessfully to  advocate  a reform  that  shall  prevent  fluc- 
tuations in  the  currency  of  Great  Britain.  It  was 
some  years  since  remarked  in  our  congress,  by  a mem- 
ber, that  the  barometer  of  the  money  market  of  the 
United  States  was  hanging  up  in  the  stock  exchange 
of  London.  Since  the  conflagration  of  that  building, 
I would  say  that  the  barometer  has  been  hanging  up 
in  the  parlour’^  of  the  bank  of  England;  and  in 
truth,  so  closely  allied  are  our  two  currencies  by  the 
ill-advised  change  in  our  gold  coinage,  which  took 
place  in  the  year  1834,  that  it  is  impossible  that  any 
expansion  or  contraction  of  the  currency  can  take 
place  in  England,  that  will  not  be  felt  here;  in  the  one 
case,  inviting  our  banks  to  extend  their  discounts,  and 
thereby  excite  overtrading  and  speculation,  and  in  the 
other  case,  compelling  them  to  contract  their  loans, 
and  thereby  produce  a general  commercial  embarrass- 
ment. 

The  plan  you  have  suggested,  and  to  which  I have 
above  referred,  appears  to  me  to  be  eminently  adapted 
to  accomplish  the  end  proposed ; and  if  the  paper  cur- 
rency of  this  country  were  under  the  control  of  a 
single  legislative  body,  as  it  is  in  England,  instead  of 
thirty  bodies,  as  it  is,  I would  recommend  it  as  the 
best  plan  I have  yet  met  with,  for  enabling  the  pub- 
lic to  enjoy  all  the  benefits  of  a paper  circulation, 
without  any  of  its  evils. 

According  to  that  plan,  as  I understand  it,  the  mint 


256 


APPENDIX. 


is  to  issue  certificates  for  sums  of  one  pound,  five 
pounds,  and  any  greater  denomination,  upon  a depo- 
site  of  gold  of  equal  amount;  and  such  fixed  propor- 
tion of  the  gold  so  deposited,  as  may  be  ascertained, 
from  experience,  to  be  the  amount  that  may,  with 
the  most  perfect  safety,  be  withdrawn  by  exportation 
from  the  metallic  portion  of  the  currency,  is  to  be  im- 
mediately invested  in  the  public  funds,  by  commis- 
sioners appointed  for  that  purpose.  By  this  process, 
the  following  results  will  be  effected: 

First.  The  mixed  currency,  after  the  exportation 
of  the  gold  above  referred  to,  will  be  precisely  equal 
to  the  quantity  of  coin  that  would  have  existed  in  the 
country,  had  there  been  no  mint  certificates. 

Secondly.  The  country  would  derive  the  profits 
resulting  from  the  employment  of  a certain  amount  of 
capital  in  commercial  pursuits,  which  would  other- 
wise have  been  unprofitably  employed  as  currency. 

Thirdly.  The  public,  and  not  private  corporations, 
or  individuals,  would  enjoy  a profit  resulting  from  the 
circulation  of  the  paper  money,  precisely  equal  to  the 
accruing  interest  on  the  public  debt  held  by  the  com- 
missioners; and. 

Fourthly.  The  country  would  be  entirely  exempted 
from  any  fluctuation  in  the  currency,  other  than  that 
to  which  a metallic  currency  is  liable;  it  being  neces- 
sarily incident  to  the  plan,  that  whenever  mint  cer- 
tificates should  be  returned  for  payment  in  gold,  the 
commissioners  should  obtain  in  the  market,  by  a sale 
of  public  securities,  an  amount  of  coin  precisely  equal 
to  that  which  was  invested,  on  the  issue  of  the  notes 
so  returned. 

Against  the  soundness  of  this  plan,  I am  not  able  to 
see  any  objections.  How  far  a general  panic,  arising 
from  war,  or  domestic  disturbance,  might  render  it 
difficult  to  sell  public  securities  in  a time  of  emergency, 
you  are  better  able  to  judge  than  I am.  Certain  is  it, 
however,  that  no  depression  of  the  stock  market  could 
result  from  a reaction  of  an  expanded  state  of  the 


APPENDIX. 


257 


currency,  the  most  frequent  cause  of  depressions  at 
the  present  day,  for,  as  there  would  be  no  expansion, 
there  could  be  no  reaction. 

Before  parting,  I can  not  omit  the  occasion  to  say  to 
you,  that,  although  the  political  horizon  is,  at  this 
moment,  somewhat  over  cast,  I can  not  persuade 
myself  that  two  countries  like  Great  Britain  and  the 
United  States,  so  peculiarly  adapted  to  supply  each 
other^s  wants,  and  whose  mutual  interest  it  so  mani- 
festly is  to  maintain  an  eternal  friendship,  can,  at  this 
enlightened  day,  be  guilty  of  the  folly  of  going  to  war. 
And  now,  wishing  youia  safe  and  expeditious  voyage, 
I subscribe  myself,  very  truly  and  respectfully. 
Your  friend  and  servant, 

CONDY  RA(JUET. 


22 


258 


APPENDIX, 


F. 


Imports  and  Exports  of  the  United  States,  from  the  1st  of  October ^ 
1789,  to  the  ZOth  of  September,  1838,  taken  from  documents 
accompanying  the  Secretary  of  the  Treasury's  annual  Report  to 
Congress,  of  the  Zd  of  December,  1839. 


Years. 

Total  value 
of  Imports. 

Total  value 
of  Exports. 

Domestic. 

Foreign. 

1790 

^23, 000,000 

g20,205,156 

gl9,666,000 

g539,156 

1791 

29,200,000 

19,012,041 

18,500,000 

512,041 

1792 

51,500,000 

20,753,098 

19,000,000 

1,753,098 

1793 

31,100,000 

26,109,572 

24,000,000 

2,109,572 

1794 

34,600,000 

33,026,233 

26,500,000 

6,526,233 

1795 

69,756,268 

47,989,472 

39,500,000 

8,489,472 

1796 

81,436,164 

67,064,097 

40,764,097 

26,300,000 

1797 

75,379,406 

56,850,006 

29,850,026 

27,000,000 

1798 

68,551,700 

61,527,097 

28,527,097 

33,000,000 

1799 

79,069,148 

78,665,522 

33,142,522 

45,523,000 

1800 

91,252,768 

70,971,780 

31,840,903 

39,130,877 

1801 

111,363,511 

94,115,925 

47,473,204 

46,642,721 

1802 

76,333,333 

72,483,160 

36,708,189 

35,774,971 

1803 

64,666,666 

55,800,033 

42,205,961 

13,594,072 

1804 

85,000,000 

77,699,074 

41,467,477 

36,231,597 

1805 

120,600,000 

95,566,021 

42,387,002 

53,179,019 

1806 

129,410,000 

101,536,963 

41,253,727 

60,283,236 

1807 

138,500,000 

108,343,150 

48,699,592 

59,643,558 

1808 

56,990,000 

22,430,960 

9,433,546 

12,997,414 

1809 

59,400,000 

52,203,231 

31,405,700 

20,797,531 

1810 

85,400,000 

66,757,974 

42,366,679 

24,391,295 

1811 

53,400,000 

61,316,831 

45,294,041 

16,022,790 

1812 

77,030,000 

38,527,236 

30,032,109 

8,495,127 

1813 

22,005,000 

27,855,997 

25,008,152 

2,847,845 

1814 

12,965,000 

6,927,441 

6,782,272 

145,169 

1815 

113,041,274 

52,557,753 

45,974,403 

6,583,350 

1816 

147,103,000 

81,920,452 

64,781,896 

17,138,556 

1817 

99,250,000 

87,671,569 

68,313,500 

19,358,069 

1818 

121,750,000 

93,281,133 

73,854,437 

19,426,696 

1819 

87,125,000 

70,142,521 

50,976,838 

19,165,683 

1820 

74,450,000 

69,691,669 

51,683,640 

18,008,029 

1821 

62,585,724 

64,974,382 

43,671,894 

21,302,488 

APPENDIX. 


259 


Years. 

Total  value 
of  Imports. 

Total  value 
of  Exports. 

Domestic. 

Foreign. 

1822 

^83, 241, 511 

^72,160,387 

§49,874,185 

§22,286,202 

1823 

77,579,267 

74,699,030 

47,155,408 

27,543,622 

1824 

80,549,007 

75,986,657 

50,649,500 

25,337,157 

1825 

96,340,075 

99,535,388 

66,944,745 

32,590,643 

1826 

84,974,477 

77,595,322 

53,055,710 

24,5.39,612 

1827 

79,484,068 

82,324,827 

58,921,691 

23,403,136 

1828 

88,509,824 

72,264,686 

50,669,669 

21,595,017 

1829 

74,492,527 

72,358,671 

55,700,193 

16,658,478 

1830 

70,876,920 

73,849,508 

59,462,029 

14,387,479 

1831 

103,191,124 

81,310,583 

61,277,057 

20,033,526 

1832 

101,029,266 

87,176,943 

63,137,470 

24,039,473 

1833 

108,118,311 

90,140,433 

70,317,698 

19,822,735 

1834 

126,521,332 

104,336,973 

81,034,162 

23,312,811 

1835 

149,895,742 

121,693,577 

101,189,082 

20,504,495 

1836 

189,980,035 

128,663,040 

106,916,680 

21,746,360 

1837 

140,989,217 

117,419,376 

95,564,414 

21,854,962 

1838 

113,717,404 

108,486,616 

96,033,821 

12,452,795 

1839*  157,609,560  1 118,359,004  ] 100,951,004  | 17,408,000 


NOTE. 

For  the  early  years  the  aggregate  of  the  value  of  imports  does 
not  appear  on  the  official  statement,  and  has  been  estimated  at 
different  amounts  by  different  persons,  and  thus  that  column  will 
not  always  correspond  with  former  reports.  But  the  difference 
will  not  be  found  so  great  as  to  affect  materially  any  general 
result.  [In  former  reports  it  is  stated,  that  prior  to  the  1st  of 
October  1820,  the  official  returns  do  not  show  the  value  of  im- 
ports. Previous  to  1796,  the  returns  of  exports  did  not  dis- 
criminate between  domestic  and  foreign  productions. — Author,~\ 

* The  imports  and  exports,  for  1839,  are  estimated  thus  by  the 
secretary,  the  exact  returns  not  having  been  received  by  him. — Author, 


260 


APPENDIX. 


G. 


ON  UNLIMITED  LIABILITY. 

By  James  Cox  Esq,  of  Philadelphia, 

The  question  of  the  extent  of  the  liability  of  indi- 
viduals, and  of  their  natural  right  to  limit  that  liability, 
is  one  which,  in  its  moral  as  well  as  in  its  economical 
aspects  and  relations,  is  of  the  highest  interest  and  im- 
portance, and  the  satisfactory  solution  of  which  is  in- 
timately connected  with  the  investigation  of  those 
general  and  fundamental  principles  of  justice  and  of 
expediency,  which  should  form  the  basis  of  all  posi- 
tive enactments. 

Prominent  among  the  many  plausible  yet  shallow 
fallacies  which  have,  with  a zeal  and  a perseverance 
worthy  of  a better  cause,  been  urged  in  favor  of  the 
device  of  a limitation  oi  individual  liability — of  a re- 
striction upon  personal  responsibility — is  the  vain  and 
contradictory  assumption  that  the  adoption  and  exten- 
sion of  this  system  of  restraints  is  required  by  an  en- 
lightened adherence  to  the  doctrines  of  the  free  trade 
theory — a theory  in  the  general  truth  of  the  conclu- 
sions of  which  there  is,  as  we  think,  no  sufficient  rea- 
son to  doubt. 

What  would  be  the  condition  of  individuals  living 
in  a state  of  the  largest  liberty  consistent  with  the 
protection  of  each  in  the  enjoyment  of  his  natural 
rights,  and  under  the  control  of  no  laws  except  such 
as  might  be  necessary  to  enforce  that  performance  of 
engagements  which  is  required  by  a regard  to  the 
paramount  obligations  of  morality,  and  to  the  demands 
of  justice?  A.  B.  and  C.  would,  as  it  is  perfectly 
manifest,  trade  with  each  other  upon  the  condition  of 
the  natural  and  unlimited  liability  of  each.  And 


APPENDIX. 


261 


should  A.  B.  and  C.  associate  together  in  order  to  trade 
with  D.  E.  and  F.,  it  would  still,  in  strict  conformity 
with  the  moral  law,  be  upon  the  basis  of  the  natural 
and  unrestrained  responsibility  of  each,  not  merely 
for  the  consequences  of  his  own  individual  actions^ 
but  for  those  of  the  association  of  which  he  was  a 
member.  And  from  this  condition  of  natural  and  in- 
herent obligation,  from  this  state  of  subjection  to  the 
moral  law,  neither  A.  B.  nor  C.  could,  by  his  own  un- 
aided act  or  by  his  individual  effort,  liberate  himself. 
To  effect  this,  the  efficacy  of  positive  enactments 
must  be  called  to  his  assistance.  Recourse  must  be 
had  to  far  fetched  and  fanciful  analogies,  to  subtile  re- 
finements and  to  legal  figments.  Privilege  usurps  the 
place  of  right.  Rights  cease  to  be  enjoyed  upon  the 
only  proper  condition  of  the  full  performance  of  du- 
ties. Perfect  freedom  is  no  longer  demanded  upon 
the  sole  ground  of  perfect  responsibility.  Liberty  and 
liability  are  rent  asunder;  an  appeal  must  be  made  to 
the  legislative  power  to  put  a limitation  upon  that 
which  was  before  unlimited — to  restrict  that  which, 
in  a state  of  freedom,  was  unrestrained.  The  very 
expression  of  limited  liability’^  betrays  the  weak- 
ness of  the  argument;  whilst  it  suggests,  and  of  neces- 
sity implies,  from  the  force  of  the  terms,  the  idea,  not 
of  freedom,  but  of  restraint  and  of  restriction. 

We  are  thus  irresistibly  led  to  the  conclusion  that 
the  fancied  advocacy  of  the  right  freely  to  trade  in 
commodities,  resolves  itself  into  an  argument  for  the 
limitation  of  that  which,  but  for  the  intervention  of 
the  law,  and  the  interference  of  the  law-makers, 
would  be  unlimited — for  the  restriction  of  that  which, 
in  the  absence  of  positive  and  special  enactments, 
would  be  unrestricted.  The  argument  for  restraints 
is  not  the  less  remarkable  as  occasionally  proceeding 
from  those  who  thrust  themselves  forward  as  the  se- 
lect and  chosen  champions  of  the  beneficent  doctrines 
of  commercial  freedom;  and  who  complacently  as- 


262 


APPENDIX. 


sume  to  themselves  the  character  of  the  freest  of  the 
free. 

‘‘There  seems  to  prevail/^  says  Mr.  Tooke,  “among 
those  who  incline  to  the  introduction  of  the  comman- 
dites^^  (or  limited  liability)  “ system,  a vague  notice 
that  something  like  a right  exists,  on^the  part  of  indi- 
viduals, to  circumscribe  their  liability’^  * * “and  that 
it  is  only  by  the  special  interference  of  the  law  of  part- 
nership that  they  are  prevented  from  exercising  that 
right,  that  the  law  is  an  interference  with  what  would 
otherwise  be  the  free,  and  probably,  therefore,  the  best 
direction  of  capital  in  trade.^^  * slightest 

reflection,  however,  it  must  be  obvious  that  the  com- 
mandite  is  a privilege^  and  has  not  the  shadow  of 
foundation  as  a natural  right.  The  general,  if  not 
universal,  rule  of  commercial  transactions  is,  that  the 
individual  is  liable  to  the  full  extent  of  his  means,  for 
the  engagements  entered  into  by  himself,  or  on  his 
behalf,  or  jointly  with  others,  and  it  is  only  by  the  in- 
tervention of  a special  law  that  he  can  be  shielded 
from  the  more  general  one.^^  And  whilst  this  interpo- 
sition must  be  considered  as  granting  “ a privilege,  it 
operates  as  a distinct  inducement — a premium — to 
individuals  to  employ  the  inferior,  instead  of  the  better 
instrument  for  carrying  on  the  trade  of  the  country.^^ 

But,  possibly,  it  may  be  objected  that  individuals 
are  at  liberty,  by  mutual  agreement,  to  limit  their  re- 
sponsibility. This,  however,  in  the  sense  intended,  is 
a mere  groundless  assertion,  without  force  or  founda- 
tion. For,  although  it  should  be  admitted  that  an  in- 
dividual may,  in  the  performance  of  a specific  con- 
tract, limit  his  liability  to  the  extent  of  the  pledged 
security,  it  would  by  no  means  necessarily  follow  that 
he  can  thus  restrict  and  restrain  his  general  liability. 
This  liability,  as  we  have  seen,  is  the  result  of  natural 
obligation.  It  arises  from  the  operation  of  the  moral 
law.  It  is  binding  upon  the  one  party,  from  the 
mere  force  of  moral  considerations;  and  it  is  entirely 


APPENDIX. 


263 


independent  of  the  claim  of  the  other  party.  It  results 
from  the  very  nature  of  man  as‘  a moral  agent.  To 
be  relieved  from  its  practical  operation,  recourse 
must  be  had  to  artificial  distinctions,  and  to  legal  fic- 
tions. The  proposition  attempted  to  be  sustained  is 
neither  more  nor  less  than  that  men  are  born  under  a 
liability  even  less  than  that  of  corporations.  For  the 
latter  being,  by  a legal  refinement,  considered  as  ar/i- 
ficial  persons^  are  responsible  to  the  whole  extent  of 
their  corporate  property.  It  is  true  that  the  most 
ready  resources  of  these  artificial  persons  are  frequently 
found  to  consist  in  an  available  fund  of  public  credu- 
lity. 

If  it  should  be  urged  that  when  a person  intrusts 
property  to  another,  he  knowingly  undertakes  the  risk 
of  that  other’s  insolvency,  and  that  if  the  contingent 
loss  happens,  he  has  no  claims  to  justice  on  the  other, 
the  answer  is  this:  that  whatever  may  be  thought  of 
these  claims,  they  are  not  the  grounds  upon  which  the 
debtor  is  obliged  to  pay.  The  debtor  always  engages 
to  pay,  and  the  engagement  is  enforced  by  morality:  the 
engagement,  therefore,  is  binding,  whatever  risk  ano- 
ther man  may  incur  by  relying  upon  it.  The  causes 
which  have  occasioned  a person’s  insolvency,  although 
they  greatly  affect  his  character,  do  not  affect  his  ob- 
ligations; the  duty  to  repay  when  he  has  the  power 
is  the  same;  whether  the  insolvency  was  occasioned 
by  his  fault  or  his  misfortune.”  Being  then  able  to 
pay,  does  the  legal  discharge  exempt  him  from  the 
obligation  to  pay?  No:  and  for  this  reason,  that  the 
legal  discharge  is  not  a moral  discharge:  that  as  the 
duty  to  pay  at  all  was  not  founded  primarily  on  the 
law,”  the  law  cannot  cancel  the  obligation. 

If  then  individuals  can,  under  no  circumstances, 
except  those  of  a distinct  and  special  contract,  be  justi- 
fied in  limiting  their  responsibility  to  each  other,  much 
less  can  they  limit  it  in  reference  to  third  parties,  and 
least  of  all,  can  the  banker  and  the  bank  debtor  have, 
as  has  been  most  absurdly  assumed,  a natural  and 


264 


APPENDIX. 


indefeasible  right  to  impose,  for  the  promotion  of  their 
own  interested  and  sordid  purposes,  upon  whole 
classes — upon  the  mass  of  the  community — the  ab- 
solute necessity  of  receiving,  in  payment  of  their  dues, 
the  promissory  notes  of  associations  made  up  of  irre- 
sponsible persons.  And  vain  and  frivolous  is  the 
assertion  that,  as  bank  notes  are  not  a legal  tender, 
their  circulation  is  the  consequence  of  their  voluntary 
reception.  For,  whatever  bank  notes  may  be  by 
law,  it  cannot  be  denied  that  they  are  virtually,  prac- 
tically, and  in  fact,  a legal  tender.  In  cases  innumer- 
able there  is  no  option,  and  their  circulation  is  thus 
made  compulsory.  As  is  notorious,  the  great  mass 
of  the  people  are,  at  all  times,  totally  without  power 
to  refuse  them.  Paper  forms  almost  the  whole  of 
the  circulating  medium,  and  the  only  real  alternative 
offered  to  a large  proportion  of  the  laboring  and 
mechanical  classes  is  to  accept  of  bank  notes,  or  to 
cease  from  their  occupations.  Thus  there  is  resting 
upon  the  supreme  authority  the  same  obligation  to 
prevent  the  circulation  of  worthless  paper,  as  there  is 
to  preserve  the  purity  of  the  coin.  And  the  duty  is 
the  more  binding,  inasmuch  as  the  country  has  sus- 
tained far  more  injury  from  the  issue  of  fraudulent 
promises,  than  from  the  circulation  of  base  coin.  The 
great  commodity  of  contract’^  should  not  be  left  to 
fluctuate  in  value  at  the  caprice,  or  to  gratify  the  cu- 
pidity of  irresponsible  or  unprincipled  parties. 

Obligation  is  involved  in  the  very  nature  of  that 
which  is  morally  good.  Obligation  to  action  and 
rectitude  of  action  are  obviously  coincident  and  iden- 
tical.’’ If  men  are  morally  responsible  for  the  con- 
sequences of  their  own  actions,  and  for  those  of  their 
agents,  (a  proposition  which  will  hardly  be  contested,) 
then  should  the  legal  liability  be  commensurate  with 
the  moral  obligation. 

But  it  has  been  said:  Grant  to  your  neighbor  the 

same  secure  exercise  of  the  rights  of  person  and  of 
property  that  you  desire  for  yourself.”  And  again: 


APPENDIX. 


265 


the  abolition  of  restrictions  will  tend  to  enable 
men  more  rapidly  to  improve  their  condition,  there 
can  be  no  moral  objection  to  the  passage  of  a law 
granting  to  all  men  permission  to  trade  with  each 
other  upon  such  terms  as  they  may  agree  upon  among 
themselves.^^  That  is  to  say:  secure  to  others,  by 
means  of enactments  directly  at  variance  with 
all  sound  and  settled  principles  of  moral  and  inherent 
accountability,  the  same  legal  exemption  from  the 
performance  of  duty — the  same  licence  to  disregard 
the  requirements  of  moral  rectitude — which  you  de- 
sire for  yourself,  and  the  climax  of  perfect  freedom 
will  then  be  attained.  A will  be  at  liberty  to  defraud 
B,  because  B will  be  free  to  cheat  C,  who,  in  his  turn, 
may,  with  impunity,  defraud  A.  The  reciprocation 
of  dishonesty  is  thus  made  perfect — the  circle  of  deceit 
is  complete.  Than  which,  we  are  told,  ‘‘  nothing 
would  tend  more  to  promote  the  cause  of  morality!’^ 
It  is  not  at  all  surprising  that  such  a chain  of  argu- 
ment should  assume,  as  its  first  link,  the  truth  of  the 
proposition  that  ^Hhe  abolition  of  restrictions/^  by 
which  is  intended  the  granting  of  exemptions^  will 
tend  to  enable  men  more  rapidly  to  improve  their 
condition/^  thus  proving  the  point  at  issue,  by  simply 
taking  it  for  granted;  and  instead  of  reasoning  directly 
for  the  expediency  of  a measure  from  its  justice, 
adopting  the  inverted  process — the  retrograde  and 
crab-like  procedure  of  inferring  its  justice  from  its 
assumed  expediency.  Neither,  under  the  circuim 
stances,  need  it  be  an  occasion  of  wonder,  that  whilst 
men  are  discoursing  upon  the  truth  and  beneficent 
tendency  of  the  doctrines  of  free  trade,  and  expatiating 
upon  the  advantages  to  ensue  to  society  from  “ the 
abolition  of  restrictions,’’  they  should  also  be  found 
pleading  for  the  passage  of  a law  granting  to  all 
men”  exemptions,  to  which,  in  the  absence  of  all  in- 
terference, on  the  part  of  the  law-makers,  with  the 
natural  state  of  perfect  freedom  upon  the  natural  con- 
23 


266 


APPENDIX. 


dition  of  perfect  responsibility,  they  could  make  no 
valid  claim  whatever. 

The  doctrine  of  a limitation  of  liability  thus  strikes, 
as  it  is  perfectly  plain,  at  the  very  foundations  of 
moral  rectitude.  It  assumes  the  right  of  individuals 
to  release  themselves,  and  the  possibility  of  their 
being  released  by  others,  from  the  bond  of  moral  ob- 
ligation; of  being  relieved  from  all  other  than  a very 
limited  measure  of  responsibility  for  the  consequences 
of  their  own  acts,  or  of  those  of  their  authorised  and 
accredited  agents.  An  assumption,  as  we  have  just 
seen,  as  little  in  accordance  with  sound  principles  of 
integrity,  as  it  is  irreconcilable  with  an  unreserved 
obedience  to  positive  precepts  of  the  highest  possi- 
ble authority.  The  dogma  has  as  slender  a basis  in 
natural  equity,  as  it  derives  little  support  from  en- 
lightened views  of  expediency.  Hence  the  entire 
correctness  of  the  remark  of  a practical  banker,  of 
excellent  understanding  and  of  great  experience,  that 
the  principle  seems  to  involve  some- 

thing very  nearly  approaching  to  injustice,  inasmuch 
as  in  the  case  of  the  insolvency  of  a concern,  it  tends 
to  remove  a portion  of  the  loss,  which  must  be  borne 
by  some  party,  from  those  who  have  voluntarily  en- 
gaged in  the  concern,  who  have  had  the  means  of 
watching  and  controlling  its  progress,  and  who  would 
have  been  the  sole  participators  in  the  benefits  of  its 
success,  for  the  purpose  of  throwing  it  upon  those 
who  had  no  means  of  insight  into  the  state  of  the  con- 
cern, no  power  over  the  management  of  it,  and  no 
share  in  its  advantage.  The  partners  may  be  but 
slightly  injured,  whilst  the  creditors  are  ruined.  The 
difficulties  too  of  guarding  against  fraud  and  intricate 
legislation  are  very  great.’^  And  where  these  diffi- 
culties have  been  in  any  considerable  degree  sur- 
mounted, it  has  usually  been  only  by  subjecting  the 
privilege  to  such  qualifications,  and  by  imposing  upon 
the  exemption  itself  such  restraints  as  have  rendered 
it  almost  nugatory  and  altogether  unacceptable  to  the 


APPENDIX.  267 

parties  desiring  to  profit  hy  the  limitation  of  their 
natural  liability. 

If  such,  then,  is  the  true  character  of  all  devices 
intended  to  limit  the  liability  of  individuals,  to  put 
restraints  upon  the  responsibility  of  moral  agents,  and 
to  grant  legal  exemptions  from  the  weight  of  natural 
obligations,  how  happens  it  that  the  nicest  con- 
science is  not  offended  by  holding  stock  in  incorpo- 
rated institutions?’’  The  answer,  in  its  application  to 
incorporations  for  trading  and  banking  purposes,  the 
only  description  of  associations  contemplated,  is  obvi- 
ous. Even  of  conscientious  persons,  some  have  never 
had  the  subject  practically  brought  home  to  them — 
have  never  had  their  attention  aroused  and  stimulated 
to  a serious  investigation  of  the  merits  of  the  ques- 
tion. Some  are  unconsciously  biassed  and  swayed  by 
interested  motives;  or  they  are  influenced  by  plausi- 
ble fallacies  and  by  specious  sophistries.  Many  are 
content  to  take  things  as  they  find  them,  without  being 
at  the  pains  to  inquire  into  the  truth  of  what  they 
may  persuade  themselves  are  merely  theoretical  re- 
finements and  metaphysical  abstractions.  iVnd  of  all 
it  may  be  affirmed,  such  is  the  widespread  sway  of 
vicious  legislation,  and  especially  in  relation  to  the 
right  to  issue  currency,  that  a strict  adherence  to  un- 
doubted principles — a rigid  observance  of  maxims 
which,  in  a different  and  a better  state  of  society, 
would  bind  the  conscience — becomes,  in  a great  de- 
gree, impracticable  and  supererogatory. 

Whilst  the  objection  noticed,  furnishes  not  even  a 
palliation,  much  less  a justification  of  a system  equally 
at  variance  with  the  dictates  of  justice,  with  the 
promptings  of  expediency,  and  with  that  natural 
order  of  things  to  advocate  and  to  sustain  which  is 
the  aim  and  the  object  of  the  political  philosopher,  it 
affords  one  of  the  strongest  arguments  against  the  pro- 
longed existence  of  a policy  fraught  with  evils  of  such 
magnitude,  and  obnoxious  to  objections  so  serious. 

The  efficient  principle  of  liability  thus  brought  into 


268 


APPENDIX. 


view  is  one  highly  conservative,  and  from  the  free 
and  unrestrained  operation  of  which  individuals,  nei- 
ther singly  nor  in  their  associate  capacity,  should  ever 
he  permitted  to  feel  themselves  emancipated.  Upon 
its  uncontrolled  influence,  in  conjunction  with  that  of 
its  antagonist  principle — the  love  of  gain — depend 
the  strength  and  conclusiveness  of  the  arguments  in 
support  of  the  beneficent  doctrines  of  commercial  free- 
dom. 

Free  trade  may  be  defined  to  be  that  system,  under 
which  every  one  is  left  in  the  enjoyment  of  his  natu- 
ral liberty  of  making  such  a disposition  of  his  pro- 
perty, and  of  giving  such  a direction  to  his  industry, 
as  may  to  himself  appear  most  conducive  to  his  inte- 
rests. It  is  that  state  of  the  law  in  which  men,  sub- 
ject merely  to  the  requirements  of  truth  and  of  jus- 
tice, are  allowed  to  trade  together  as  they  like,  it  being 
reasonably  presumed  that,  in  the  vast  majority  of 
cases,  individual  sagacity,  sharpened  by  competition 
and  by  individual  interest,  will  secure  to  the  commu- 
nity the  ultimate  attainment  of  results  more  positively 
and  diflfusively  beneficial,  than  can  possibly  flow  from 
the  interference  of  the  (so  called)  collective  wisdom 
of  legislators.  Upon  the  tentative’’  efforts  of  inte- 
rested parties  reliance  may  securely  be  reposed  for  a 
satisfactory  adjustment  of  conflicting  claims,  and  for 
the  establishment  and  continuance  of  that  natural 
order  of  things  which  alone  can  be  permanently  and 
generally  advantageous.  This  freedom,  however,  de- 
generates into  a wild  and  unrestrained  licence;  indi- 
vidual sagacity  ceases  to  be  a solid  and  secure  ground 
of  confidence,  when  any  one  of  the  leading  and  influ- 
ential principles,  by  which  moral  and  responsible 
agents  are  governed,  is  impaired  or  weakened  in  its 
natural  and  healthy  action — when  men  cease  to  be, 
under  all  contingencies,  answerable  for  their  doings — 
when  the  love  of  gain  is  inordinately  stimulated  by 
the  hope  of  high  profits;  whilst  the  fear  of  loss  is 
banished  by  the  facility  with  which  much  of  that  loss 


APPENDIX. 


269 


may  be  thrown  upon  others — upon  those  who,  under 
no  circumstances,  would  have  participated  in  the 
gains.  The  natural  equilibrium  of  wisely  balanced 
motives  is  disturbed.  The  just  equipoise  of  conflict- 
ing influences  is  destroyed.  The  spirit  of  enterprise 
is  unduly  excited,  and  the  public  is  thus  deprived  of 
the  stability  and  security  resulting  from  the  salutary 
operation  of  a natural  principle — the  fear  of  loss — 
Implanted  in  our  natures  for  wise  purposes;  and  which, 
in  all  cases  of  individual  risk,  undertaken  and  prose- 
cuted under  a sense  of  unlimited  individual  liability^ 
constitutes  a most  wholesome  restraint  upon  every 
scheme  of  doubtful  utility — upon  every  project  of 
questionable  legality. 

Thus  it  is  that  a writer,  displaying  a perfect  famili- 
arity with  all  the  practical  details  of  the  subject,  as 
well  as  a full  comprehension  of  the  great  moral  and 
economical  principles  involved  in  its  discussion,  ad- 
verting to  the  admitted  truth  that  the  spirit  of  specu- 
lation is  already  ‘^too  strong,^^  expresses  his  convic- 
tions in  the  following  unreserved  language:  Great 

danger  is  to  be  apprehended  from  any  step  that  would 
tend  to  give  unnatural  inducement  to  persons  not 
bred  to,  and  not  acquainted  with  mercantile  pursuits, 
to  embark  their  property  in  such  concerns.  Without 
the  least  hesitation,  I pronounce  it  to  be  a scheme  full 
of  danger  to  the  interests  of  the  commerce  and  manu- 
factures of  this  country,’’  (England)  ‘^placing  them 
in  a position  of  extreme  hazard  and  likely  to  produce 
the  most  extensive  mischief,  if  adopted.”  And  again: 
Any  thing  that  would  attract  capital  in  an  unnatural 
way  to  speculative  objects,  I consider  to  be  very  dis- 
advantageous.” And  he  concludes  his  summary  of  ob- 
jections against  the  scheme  with  the  observation  that: 
In  my  opinion  there  is  no  sound  or  safe  system  that 
can  admit  of  limited  liability.” 

So  also  a practical  and  most  judicious  writer  of 
ample  experience,  and  enjoying  every  opportunity  of 
the  most  extended  observation:  In  proportion  a.s  the 

03^ 


270 


APPENDIX. 


consequences  of  failure  are  rendered  less  serious,  must 
we  not  expect  that  concerns  will  be  undertaken  with 
a more  speculative  feeling,  and  be  conducted  with  less 
vigilance  and  sobriety?  We  should  consider  well  the 
tendency  which  the  sense  of  limited  responsibility 
has  to  elicit  the  spirit  of  gambling,'^’ 

As  the  principle  of  the  limitation  of  the  liability  of 
individuals  is  thus  obnoxious  to  the  heaviest  objec- 
tions on  the  score  of  its  evident  and  injurious  tendency 
to  promote  an  artificial  distribution  of  the  national 
capital,  and  thus  to  diminish  its  productiveness  and  to 
prevent  its  rapid  accumulation,  thereby  retarding  the 
natural  progress  of  society,  so  its  influence  is  no  less 
sinister  upon  the  moral  and  intellectual  character  of 
individuals.  Removing  the  risk  of  general  liability 
would,  in  the  existing  state  of  society,  have  a ten- 
dency to  separate  still  more  than  they  are  now,  the 
partner  bringing  capital  from  the  partner  bringing 
labor.  The  idleness  of  the  capitalist  is  now  checked 
by  the  risk  in  which  it  involves  the  monied  partners. 
The  natural  laziness  of  mankind  would  induce  capi- 
talists to  unite  in  large  partnerships  for  the  most  ordi- 
nary business  matters,  doing  little  or  nothing  them- 
selves, and  leaving  the  management  to  subalterns. 
The  check  upon  this  is  the  unlimited  liability  under 
the  existing  law,  and  the  result  of  thus  superseding 
industry  in  the  principal,  would  be  to  deteriorate  the 
talents  and  characters  of  the  mercantile  and  manufac- 
turing classes.^’  The  question,  too,  it  may  be  added 
in  the  words  of  an  eminent  moralist,  is  not  whether 
some  men,’^  in  view  of  the  risks  to  be  incurred, 
‘‘  would  not  prefer  indolence  to  the  calls  of  justice,’^ 
now  so  commonly  disregarded,  ‘^but  whether  the 
public  should  judge  accurately  respecting  what  those 
calls  are.’^ 

If  then  the  principles  of  free  trade,  which  are  but 
the  principles  of  justice,  of  equality  and  of  common 
sense,  do  not  admit  of  unnecessary  restraints  upon 
the  liberty  of  human  action,  much  less,  when  properly 


APPENDIX.  271 

imderstood,  can  they  sanction  or  tolerate  a limitation 
of  individual  liability. 

The  nature  of  the  arguments  frequently  employed 
by  the  champions  of  the  doctrine  of  a limitation  of 
liability,  especially  in  its  application  to  associations 
of  individuals  for  the  manufacture  and  the  issue  of  a 
paper  currency,  furnishes  abundant  evidence  of  the 
prevailing  confusion  of  ideas  in  the  discussion  of  eco- 
nomical questions;  of  the  inability  to  discriminate 
between  things  possessing  some  few  points  of  resem- 
blance, yet  in  their  real  nature  perfectly  distinct;  and  of 
the  toocommon  deficiency  of  analytical  sagacity, in  con- 
sidering as  identical,  propositions  essentially  different. 
Assuming,  since  it  cannot  he  proved, the  opinion  is 
correct  that  partnerships  for  commercial  and  manu- 
facturing purposes — for  dealing  in  commodities  pos- 
sessed of  intrinsic  value — for  trading  in  corn,  cotton 
or  coin,  may  be  safely  and  beneficially  formed  upon 
the  principle  of  a limitation  of  liability;  does  it,  there- 
fore, follow  that  the  same  principle  is  equally  appli- 
cable to  associations  for  the  manufacture  and  the  issue  of 
paper  promises — of  promises  intended  as  a substitute 
for  coin — of  promises  which,  in  the  actual  condition  of 
affairs,  no  man  can  conveniently  refuse,  and  which  no 
man  can,  with  entire  safety,  take?  Is  the  grant  of  a bank 
credit,  or  the  issue  of  a species  of  currency  which,  whilst 
it  requires  little  expenditure  of  labor  or  of  capital  for  its 
production,  by  the  facility  with  which  it  is  exchanged 
for  articles  possessed  of  intrinsic  value,  is  in  the  high- 
est degree  profitable  to  the  issuer,  and  thus  holds  out 
the  strongest  inducements  to  over-production,  an  over- 
production, the  constant  tendency  to  which  is  feebly, 
if  at  all,  restrained  by  the  apprehension  of  the  remote 
contingency  of  possible  and  ultimate  loss — is  this  pro- 
cess to  be  compared  with  the  production  of  commo- 
dities? Or  is  the  trade  in  promises  to  be  put  upon 
the  same  footing  with  the  exchange  of  material  pro- 
ducts— with  the  trade  in  real,  not  representative 


272 


APPENDIX. 


values?  Is  that  which  may  be  true  of  the  substance^ 
necessarily  true  of  the  shadow  also? 

The  fallacy  of  the  argument  usually  employed  in 
the  defence  of  a most  pernicious  and  demoralizing 
doctrine,  in  its  application  to  the  question  of  the  right 
to  issue  currency,  consists  in  the  dexterous  employ- 
ment of  the  term  money  in  its  double  sense  of  coirij 
and  of  promises  to  pay  coin.  And,  because  it  may 
possibly  be  admitted  that  the  trade  in  coin,  as  in  corn 
or  in  cotton,  may  properly  be  conducted  upon  certain 
principles,  it  is  cunningly  or  ignorantly  inferred  that 
the  same  conclusion  is  applicable  to  the  trade  in  pro- 
mises. The  truth  of  the  proposition  A is  conceded, 
and  the  artifice  or  the  blunder  consists  in  taking  for 
granted  that  the  proposition  B is  identical  with  A, 
and  that  it  is,  therefore,  equally  true.  This  is  one 
among  the  many  instances  of  attempts,  made  by  in- 
terested parties,  or  by  deluded  partisans,  to  mystify 
clearly  ascertained  principles,  and  to  pervert  estab- 
lished doctrines.  If  the  major  proposition  is  true,  the 
minor  is  so  also.  If  the  trade  in  capital — if  the  bor- 
rowing and  lending  of  coin,  of  metallic  money  pos- 
sessed of  intrinsic  and  indestructible  value — cannot 
safely  be  allowed  with  a limitation  of  the  liability 
of  the  dealers,  much  less  can  the  trade  in  mere  pro- 
mises. 

To  the  plan  of  subjecting  associations  for  banking 
purposes  to  the  regulation  an^  restraint  resulting 
from  the  natural  and  quiet  operation  of  the  equitable 
and  salutary  principle  of  the  unlimited  liability  of 
individuals,  it  has  been  objected  that  the  multiplication 
of  banks  being  thereby  effectually  stayed,  a wholesome 
competition  is  prevented. 

The  answer  to  this  objection  is  as  easy  as  it  is  con- 
clusive. We  assert,  as  that  which  cannot  be  disproved, 
that  the  multiplication  of  banks  has  no  where  been 
in  this  way  improperly  or  unduly  checked.  On  the 
contrary,  under  the  application  of  the  principle  assailed 


APPENDIX. 


273 


and  notwithstanding  its  assumed  incompatibility  with 
the  freedom  of  the  banking  business,  these  establish- 
ments have  not  only  increased  in  number,  but  their 
increase  has  been  rapid,  excessive  and  hurtful. 

Thus,  in  Scotland,  where  joint  stock  banking  com- 
panies are  organised  and  administered  upon  the  sound 
and  salutary  principle  of  the  liability  of  each  partner 
to  the  whole  extent  of  his  fortune  for  the  whole  debts 
of  the  company/’  and  where  this  liability  of  individuals 
furnishes  to  note-holders  and  depositors  the  firmest 
ground  of  confidence  and  of  security,  there  are  no 
fewer  than  26  banks,  with  314  branches.  Eight  of 
the  former  and  113  of  the  latter  have  been  established 
since  1824;  and  such  is  their  general  diffusion  over 
the  country,  that  there  is  scarcely  a town,  or  even  a 
village,  into  which  branches  of  the  Scotch  banks, 
equivalent  to  so  many  separate  and  distinct  banks  have 
not  penetrated.” 

The  consequence  of  this  condition  of  the  banking 
business  is,  that  the  dividends  upon  bank  stock — the 
profits  of  the  shareholders— are  reduced  to  the  lowest 
point  consistent  with  the  continued  investment  of  cap- 
ital in  this  department  of  commercial  industry  and  en- 
terprise. So  little  foundation  is  there  for  the  positive 
assertions  which  have  been  so  recklessly  ventured  as 
to  the  assumed  necessity  of  holding  out  the  expecta- 
tion of  exorbitant  profits,  as  an  inducement  to  capital- 
ists to  incur  the  risks  of  individual  liability.  It  may, 
in  truth,  be  questioned  whether  these  risks  have  been 
practically  at  all  increased;  and  whether  the  unre- 
strained responsibility  of  the  parties  has  not  been  more 
than  compensated  by  a commensurate  increase  of 
circumspection,  of  prudence,  and  of  good  management 
and  by  a consequent  and  coresponding  enlargement 
of  credit.  Individual  sagacity,  in  this  as  in  all  other 
analogous  cases,  has  been  sharpened,  and  individual 
caution  has  been  stimulated  by  the  absence  of  all  posi- 
tive and  artificial  restraints  upon  individual  liability. 
Hence  these  banks  are  administered  with  a view  to 


274 


APPENDIX. 


the  promotion  of  the  interests,  not  of  the  borrowers^  as 
is  too  often  the  case  in  this  country,  but  of  the  owners  of 
bank  capital.  And  there  is  no  reason  to  believe  that 
stockholders  have  in  Scotland  suffered  as  much  as  the 
same  class  of  capitalists  have  endured  in  this  country; 
whilst  the  losses  of  the  public  have  been  in  a greatly 
diminished  ratio. 

Thus,  also,  in  England  where  previous  to  1826  com- 
panies for  banking  purposes  were  not  allowed  to  con- 
sist of  more  than  six  partners,  and  where,  as  in  Scot- 
land, the  unlimited  liability  of  the  associated  individuals' 
lies  at  the  foundation  of  the  system,  such,  since  the  re- 
peal of  the  restriction  upon  the  number  of  partners,  has 
been  the  rapidity  with  which  these  associations  have 
increased,  that  there  were  in  1836,  in  addition  to  se- 
veral hundred  private  banks,  101  joint  stock  companies 
with  very  numerous  branches.  Of  these  45  were  re- 
gistered in  one  year  alone,  and  counting  their  branches 
which  are  often  removed  from  the  parent  establish- 
ment, and  conduct  all  sorts  of  banking  business,  it  may 
safely  be  affirmed  that  considerably  more  than  200 
banking  establishments  were  set  on  foot  in  England 
and  Wales  in  1836.’^  Hence,  whilst,  by  the  most 
enlightened  and  strenuous  advocates  of  the  joint  stock 
banking  system,  it  has  been  freely  and  unreservedly 
admitted  that  too  many  banks’^  have  been  established, 
by  others,  this  increase  has  been  represented  as  ^^alarrn- 
ing,’’  and  the  speculative  spirit  which  thus  developed 
itself,  has  been  correctly  characterised  as  a mania,^^  to 
the  prevalence  of  which  there  proved  to  be  no  serious 
obstacle,  either  in  the  unrestrained  responsibility  of  the 
shareholder,  or  in  the  existence  of  a powerful  national 
bank,  possessed  of  monopoly  privileges,  and  sustained 
by  the  whole  force  of  government  patronage  and  of 
government  influence. 

Are  there  not  then,  it  may  confidently  be  asked, 
ample  and  satisfactory  reasons  for  admitting  the  entire 
propriety  of  the  conclusion  drawn  by  Mr.  Quin,  who, 
at  the  close  of  his  most  elaborate  abstract  and  review 


APPENDIX. 


275 


of  the  evidence  taken  before  the  Parliamentary  com- 
mittee of  1832,  remarks:  If  men  with  sufficient  cap- 

itals are  already  found  in  abundance  disposed  to  em- 
bark in  the  banking  trade  at  the  risk  of  their  own  for- 
tunes, there  is  no  reason  why  speculators  should  be 
allowed  to  establish  banks  of  issue  upon  a less  respon- 
sible system.^^ 

But  again,  we  affirm,  without  the  fear  of  refutation, 
that  the  beneficial  tendency  of  competition  to  prevent 
excessive  production,  in  its  application  to  associations, 
not  for  the  manufacture  of  articles  requiring  for  their 
creation  the  expenditure  of  capital  and  the  application 
of  industry,  but  for  the  making  and  the  issuing  of  cur- 
rency-of  promises  to  pay — of  paper  costing  compara- 
tively nothing,  has  never  yet  been  demonstrated.  It 
has  merely  been  taken  for  granted.  In  the  case  of 
commodities  possessing  not  a representative,  but  an 
intrinsic  value,  the  public  are  in  general,  secure  from  an 
over-production  from  the  simple  consideration  that  no 
man  will  knowingly  continue  to  produce  and  to  bring  to 
market  an  article  which  does  not  realize  to  the  pro- 
ducer the  cost  of  production,  together  with  at  least  the 
ordinary  return  upon  the  investment  of  capital,  and 
the  ordinary  reward  for  the  application  of  labor.  And 
should  an  individual,  from  inexperience,  from  igno- 
rance, or  from  any  other  cause,  fall  into  the  error  of  in- 
creasing the  supply  beyond  the  effective  demand — be- 
yond the  demand  of  those  able  and  willing  to  purchase, 
he  would  soon  become  satisfied  of  his  mistake;  and 
would  be  obliged,  at  his  own  expense,  to  correct  the  er- 
ror. Now  what  is  true  of  one  individual  is  true  of 
many.  What  is  true  of  many,  is  true  of  the  mass.  Thus 
we  may  safely  trust  to  ^4he  spontaneous  operation  of 
private  interests,’’  for  the  proper  apportionment  of  the 
supply  to  the  demand;  and  all  interference  of  the  gov- 
ernors with  the  governed  must  prove  to  be  not  mere- 
ly ill  advised  and  uncalled  for,  but  ultimately  and  ab- 
solutely pernicious.  ^ 

Widely  different,  however,  is  the  case,  when  we 
proceed  to  an  investigation  of  the  causes  which  ope- 


276 


APPENDIX. 


rate  upon  the  manufacture  of  bank  promises;  to  ex- 
amine into  the  motives  which  influence  in  the  issue  of 
a currency  possessed  of  little  or  no  intrinsic  value. 
Here  the  gain  to  the  issuer  is  immediate,  is  considera- 
ble, is  certain;  whilst  the  cost  of  production  is  rela- 
tively insignificant,  and  the  loss  of  profit  consequent 
upon  are-action,  is  future,  distant,  contingent  and  un- 
certain. It  may  be  avoided.  It  may  be  thrown,  as 
it  usually  is,  upon  the  shoulders  of  the  public — and  in 
few  instances  is  the  return  of  paper  upon  the  issuer 
attended  with  a positive  loss.  Its  effect  is  simply  a 
diminution  of  anticipated  profits.  The  actual  loss  is 
incurred  by  those  bank  debtors  who  may  be  compelled 
to  make  heavy  sacrifices  in  order  to  sustain  their  credit 
and  to  honor  their  engagements;  or  by  those  bank  credi- 
tors, who  are  in  possession  of  obligations  which  are 
disregarded— of  promises  which  are  not  performed. 
Thus  there  exists  every  inducement  to  banks  to  lend 
their  credit,  and  to  increase  the  supply  of  their  paper; 
that  is  to  say,  there  is  every  stimulus  to  an  expansion; 
whilst,  on  the  other  hand,  inasmuch  as  bank  credit  in 
the  form  of  bank  notes,  so  long  at  least  as  the  ultimate 
solvency  of  a bank  is  thought  not  to  be  impaired,  is 
to  the  borrower  just  as  available  as  capital,  the  de- 
mand is  limited  only  by  the  extent  of  the  opportunities, 
or  of  the  supposed  opportunities,  for  profitably  employ- 
ing capital;  that  is  to  say,  it  is  practically  unlimited, 
‘‘  The  constant  tendency,  therefore,  of  banks  is  to  lend 
too  much,  and  to  put  too  many  notes  in  circulation.^^ 
Fancifully  and  absurdly  to  compare  banks  of  issue 
— paper  mints — to  shoe  shops,^^  as  has  been  done  by 
some,  and  to  assume  that  the  one  are  subject  to  the 
same  influences,  and  are  governed  by  the  same  gen- 
eral laws  as  the  other,  may,  to  the  unreflecting  and  to 
the  superficial,  present  an  appearance  of  plausibility 
and  of  acuteness;  but  to  the  mind  of  the  philosophical 
inquirer,  who  perceives  the  entire  absence  of  any 
analogy  upon  which  to  rest  a parallelism  of  argument, 
such  far-fetched  comparisons  can  bring  no  conviction. 


APPENDIX. 


277 


It  is  not  merely  a demonstrable  truth,  but  a truth 
that  has  again  and  again  been  demonstrated,  that  banks 
issuing  paper  really  and  thoroughly  convertible  can 
neither  expand  nor  contract  the  general  mass  of  the 
currency  to  an  amount  permanently  greater,  or 
manently  less,  than  it  would  be  with  a medium  ex- 
clusively metallic;  and  that,  therefore,  the  average 
quantity  of  the  currency,  and  consequently  the  average 
money  values,  or  prices  of  real  estate  and  of  commo- 
dities generally,  will  in  any  given  country  be  the  same 
or  nearly  the  same,  whether  the  currency  consists  ex- 
clusively of  convertible  paper,  or  of  coin;  or  whether 
it  is  compounded  in  any  conceivable  proportions  of 
both.  But  it  is  equally  true,  in  fact,  it  cannot  be  de- 
nied, that  in  this  country  the  convertibility  of  paper  is 
at  all  times  exceedingly  imperfect;  and  that  there  is 
constant  danger  of  this  imperfect  convertibility  ceasing 
altogether. 

Neither,  after  the  experience  of  all  countries  em- 
ploying a paper  medium,  can  there  any  doubt  be 
entertained  that  an  excess  of  paper  money,  even 
whenfreely  convertible  into  specie,  may  exist  for  some 
time  unredressed;  and  although  the  check  of  converti- 
bility must  ultimately  prevail,  very  considerable  effects 
on  prices  may  be  produced  in  the  interval.’^  And  as 
this  redundancy,  however  hurtful  it  may  be,  is  surely 
and  inevitably  followed  by  a deficiency  still  more 
pernicious,  it  is  of  great  consequence  that  a paper 
currency  should  not  only  be  subject  to  repression  from 
without,  but  be  placed  under  such  a system  of  manage- 
ment as  will  prevent  any  excess  in  quantity  from  be- 
ing issued.’^  But  the  only  system^^  which  can  pos- 
sibly accomplish  this  most  desirable  object — the  only 
policy  at  all  entitled  to  be  preventive — will  be 

found  to  consist  in  an  entire  separation  of  the  incompat- 
ible functions  of  banks  of  issue  and  of  banks  of  discount. 
A paper  currency,  if  such  a currency  is  thought  to 
be  indispensable  or  desirable^  should  be  furnished  by 
banks  purely  of  issue,  automatically  expanding  and 
24 


278 


APPENDIX. 


contracting  the  circulation  simply  in  reference  to  the 
demand  for  paper  in  exchange  for  the  precious  metals 
and  the  demand  for  the  metals  in  exchange  for  paper. 
On  the  other  hand,  commercial  securities  should  be 
discounted,  as  is  the  practice  in  London,  by  banks  not 
of  issue,  but  of  discount  and  deposite — by  banks  not 
trenching  on  the  perogatives  of  sovereignty  by  coin- 
ing money’’ — but  by  banks  which  are  properly  mere 
borrowers  and  lenders  of  capital,  and  dealers  in  coin. 

The  functions  of  banks  of  discount  are  in  their  na- 
ture purely  commercial,  and  the  only  supervision  either 
necessary  or  justifiable  on  the  part  of  government,  is 
that  the  parties  to  contracts  should  be  held  strictly  re- 
sponsible for  their  performance.  Banks  of  issue,  on 
the  contrary,  cannot  be  kept  too  distinct  in  their  ope- 
rations not  merely  from  all  mercantile  dealings,  but 
they  should  be  removed  from  all  sympathy  with  money 
lenders  and  money  borrowers. 

The  inevitable  consequence  of  combining  the  issue 
of  paper  money  with  the  proper  and  the  appropriate 
business  of  banks  of  discount,  is  to  aggravate  commer- 
cial embarrassments,  and  to  give  redoubled  intensity 
to  commercial  revulsions. 

The  system  of  paper  money  banking  as  it  exists  in 
this  country,  and  the  prominent  feature  of  which  is 
the  confiding  to  associations  of  irresponsible  traders 
and  speculators  the  discharge  of  one  of  the  most  im- 
portant and  vital  functions  of  sovereignty,  and  thus 
giving  to  interested  parties  the  control  over  the  great 
commodity  of  contract,”  is  a system  evil  in  its  es- 
sence, vicious  in  its  very  constitution,  and  irremedia- 
bly and  irresistibly  pernicious  in  its  influences,  ten- 
dencies and  consequences. 

In  the  fabrication  and  the  issue  oi promises  to  pay 
there  will  be,  as  has  been  already  shown,  a constant 
tendency  to  excess,  because  the  manufacture  costs 
comparatively  little  or  nothing;  because  the  issue  is 
highly  lucrative;  and  because  the  performance  of  the 
promise  can  be  evaded,  and,  as  is  perfectly  notorious, 


APPENDIX. 


279 


constantly  is  evaded,  whenever  it  becomes  burden- 
some; or  the  burden  will,  at  all  events,  be  shifted  to 
the  shoulders  of  others.  Convertibility  at  the  will 
of  the  holders,  and  a sense  of  this  power  in  them,  on 
the  part  of  the  issuer  is  not,  as  experience  has  proved 
and  is  proving,  any  restraint  in  the  way  of  over-issue. 
It  is  not  a preventive,  but  a painful  method  of  cure. — 
And  it  appears  to  exercise  no  more  influence  on  the 
mind  of  the  issuer  than  the  fear  of  future  punishment 
is  found  to  exercise  on  the  majority  of  those  who  are 
in  full  possession  of  health  and  vigor.^^  On  the  con- 
trary, the  production  and  the  supply  of  material  com- 
modities, possessed  of  intrinsic  value,  will  not  ordina- 
rily be  in  excess;  because  the  creation  of  such  pro- 
ducts involves  an  expenditure  of  capital,  and  the  em- 
ployment of  industry;  and  because  an  excess  in  the 
supply ,'by  causing  a fall  in  price,  whilst  it  benefits  the 
consumer,  entails  a certain  loss  upon  the  producer. 

But  it  is  said  that,  under  a system  of  free  compe- 
tition, banks  of  issue  will  effectually  check  each  other, 
and  thus  prevent  all  undue  expansions  in  the  volume 
of  the  currency,  and  all  injurious  fluctuations  in  the 
value  of  its  denominations. 

Now,  admitting,  (the  admission  being  in  direct  con- 
tradiction to  all  observation  and  to  all  experience,) 
that  the  banks  of  a community  ordinarily  act,  not  in 
combination  and  in  concert,  but  in  competition  and  in 
conflict  with  each  other;  still,  as  the  object  common 
to  all  banks,  conducted  with  a reference  to  the  promo- 
tion of  the  interests  of  the  share  holders,  is,  as  far  as 
possible,  to  extend  their  circulation  and  to  lend  their 
credit,  and  thus  to  swell  their  profits,  this  competition 
can  manifestly  have  ultimately  no  other  effect  than  to 
secure  to  each  bank  its proportional  share  of  the 
general  circulating  mass,  and,  also,  its  proportional 
share  of  any  increase  in  that  circulation — of  any  ad- 
dition to  the  general  mass;  and  the  only  consequence 
of  an  individual  bank  magnanimously  declining  to 


280 


APPENDIX. 


take  its  portion  of  growing  profits,  would  be  that  the 
rejected  business  would  go  to  some  other  bank.^^ 

Thus  it  is  that,  as  with  an  expanding  currency, 
banks  emulously  blow  up  the  inflation,  so,  when 
the  subsequent  and  surely  consequent  reaction  has 
commenced,  and  when,  from  the  external  pressure  of 
a demand  for  coin  to  be  exported,  constituting  the 
only  really  operative  check  upon  excessive  issues, 
they  are  compelled  to  contract,  they  vie  with  each 
other  in  the  baste  with  which  they  curtail.  The  com- 
petition, so  far  as  it  has  an  existence,  consists  at  one 
time  in  a struggle  to  push  out,  and  at  another  time  in 
a convulsive  effort  to  draw  in  as  many  notes  as  possi- 
ble. This  very  elasticity  of  the  circulation — this  pow- 
er of  suddenly  expanding  and  contracting  its  volume, 
which  has  so  often  been  represented  as  forming  one 
of  its  highest  recommendations,  thus  rendering  it  emi- 
nently dangerous  and  explosive,  and  conferring  upon 
it  unequalled  powers  of  mischief.  This  is  the  consti- 
tutional disease,  the  incurable  taint  inherent  in  the 
system,  and  against  the  destructive  consequences  of 
which  no  effective  preventive  has  hitherto  been,  or  is 
likely  hereafter  to  be  discovered,  short  of  such  a radi- 
cal change  as  shall  abolish  the  exercise  of  the  abstract 
right  to  issue,  and  thus  suppress  all  paper  money;  or 
as  shall  bring  about  an  entire  and  complete  separation 
between'  the  conflicting,  the  incompatible  and  the  irre- 
concilable functions  of  banks  of  issue  and  of  banks  of 
discount — of  issuers  of  currency  and  of  mere  dealers 
in  capital.  Hence  the  entire  correctness  of  the  obser- 
vation of  one  of  the  most  able  of  our  own  writers, 
and  one,  too,  of  the  most  discriminating  and  logical 
of  reasoners:  ^^That  general  tendency  \o  an  ex- 
pansion of  the  currency,  to  be  succeeded  of  course  by 
a contraction  of  it,  is  much  more  considerable  where 
many  than  where  a few  banks  are  competing  with 
each  other  to  obtain  as  large  a portion  of  the  circula- 
tion as  they  respectively  can/^  Hence,  also,  the  just- 
ness of  the  conclusion  of  a foreign  authority:  ‘‘  That 


APPENDIX, 


281 


the  more  banks  are  multiplied,  the  greater  is  the 
chance  of  fluctuations  in  their  issues,  and  consequently 
in  prices,  credit  and  so  forth.^^  It  is  not,  on  that  ac- 
count, the  less  true  that  so  long  as  the  system  is  al- 
lowed to  exist,  in  the  language  of  the  same  distin- 
guished economist,  “ If  the  names  of  the  partners  in 
deposite  banks,  or  in  banks  issuing  notes  on  security^ 
be  given;  and  if  these  partners  be  bound  jointly  and 
severally  to  the  whole  extent  of  their  fortunes  for 
their  engagements,  nothing  more  can  be  done  by  law 
for  the  protection  of  the  public  interests.  Every  thing 
else  should  be  left  to  individual  sagacity  and  pru- 
dence. 

Thus  the  guarantee  against  abuses,  as  it  is  perfectly 
evident,  is  found  not  in  the  competition,  but  in  the 
thorough  responsibility  of  the  parties  for  whose  bene- 
fit the  issues  are  made,  and  who  derive  the  whole  of 
the  profit  accruing  from  the  gainful  process  of  convert- 
ing paper  into  money — of  exchanging  promises  for 
commodities. 

In  this  unrestrained  responsibility,  and  not,  as  is 
frequently  and  absurdly  taken  for  granted,  in  any 
amount  of  competition  real  or  imaginary,  lies  much 
of  the  secret  of  the  comparative  stability,  solidity  and 
security  of  the  Scotch  banking  associations.  To  insist, 
however,  upon  the  interference  of  the  Legislature  to 
regulate  the  number  of  banks,  as  it  would  be  justly 
liable  to  other  objections,  so  it  would  be  to  advocate 
the  odious  scheme  of  granting  monopolies  and  exclu- 
sive privileges;  and  to  all  the  evils  inherent  in  our 
present  vicious  banking  system,  to  add  the  abuses  of 
special  and  of  partial  legislation.  The  proper  objects 
of  government,’^  as  stated  by  a writer  of  the  most 
penetrating  sagacity,  and  one  of  the  most  powerful 
and  conclusive  reasoners  in  favor  of  the  free  trade 
theory,  are  to  provide  that  paper  money  be  perfectly 
secure,  and  at  all  times  convertible  into  the  coin  which 
it  represents;  and  that  the  danger  of  over  issues 
should  be  met  by  adequate  preventive,  or  remedial 

24^ 


282 


APPENDIX. 


checks.’^  And  as  remarked  by  another  economist,  as 
the  result  of  the  most  matured  experience  and  of  the 
closest  observation:  The  knowledge  of  who  the 

partners  are  in  a bank,  and  their  unlimited  responsi- 
bility, are  the  only  securities  that,  speaking  generally, 
are  worth  a pinch  of  snuff.  If  these  cannot  protect 
the  public  from  fraud  or  loss,  nothing  else  will;  and 
the  question  will  come  to  be,  not  whether  the  system 
should  be  reformed,  but  whether  it  should  be  abated 
as  an  incurable  nuisance.’^  In  the  language  of  Mr. 
Ricardo:  Is  it  not  inconsistent  that  government 

should  use  its  power  to  protect  the  community  from 
the  loss  of  one  shilling  in  a guinea,  but  does  not  inter- 
fere to  protect  them  from  the  loss  of  the  whole  twenty 
shillings  in  a one  pound  note.’^ 

To  exonerate  individual  partners  from  the  payment 
of  partnership  debts,  is  to  encourage  both  rashness 
and  fraud.  Under  any  circumstances,^^  in  the  words 
of  an  able  writer  and  experienced  banker,  it  seems 
inexpedient,  as  regards  the  public,  and  unjust  as  re- 
gards private  bankers,  to  favor  especially  joint  stock 
banks,  by  making  a particular  law  in  their  behalf?^ 
And  the  practical  operation  of  a legislative  act  grant- 
ing to  associated  parties  the  privileges  and  the  immu- 
nities conferred  by  their  being  invested  with  the  cor- 
porate character  is,  that  they  may  contract  debts  to 
any  amount,  while  they  are  bound  to  pay  only  to  a 
specific  amount;  their  charters  thus  vitiating  the  fun- 
damental principle  of  all  business,  and  the  essence  of 
all  confidence,  viz:  the  integrity  of  contracts.  This 
surely  may  be  termed  a premium  upon  great  villany.’’ 

In  favor  of  individuals  and  of  associations  of  indi- 
viduals, the  claim  has  been  advanced  that  they  have 
the  right  to  issue  their  paper  promises  intended  as  a 
substitute,  and  in  fact,  forming  a substitute  for  the 
coin  of  the  country — for  the  currency  of  the  constitu- 
tion. 

As  a mere  theoretical  question — a metaphysical 
abstraction,  it  may,  perhaps,  be  admitted  that  such  a 


APPENDIX. 


283 


right  may  be  classed  among  those  which  have  been 
termed  natural.  A similar  concession  might  be  made 
as  to  the  right  to  coin  metallic  money.  It  is  not,  how- 
ever, the  less  true  that  both  the  justice  and  the  expe- 
diency of  the  unrestrained  and  unconditional  exercise 
of  the  right  has  been  assumed,  rather  than  attempted 
to  be  proved.  In  former  and  in  barbarous  ages,  pow- 
erful individuals  have  been  allowed  to  coin  money; 
but  at  more  civilized  periods,  and  among  enlightened 
nations,  the  right  to  coin  has  always  and  everywhere 
been  assumed  and  exercised  by  the  supreme  autho- 
rity, to  the  entire  exclusion  of  all  participation  of  indi- 
viduals in  the  discharge  of  a function  properly  described 
as  sovereign.  Hence,  although  it  may  be  pushing  the 
argument  too  far  to  assert  that  there  are  no  grounds 
for  any  claim  of  natural  right  in  any  individual  to 
furnish,  by  his  own  notes,  the  whole  or  any  part  of 
the  currency  of  the  country it  is  undoubtedly  true 
that  the  argument  in  favor  of  the  policy  of  govern- 
ment assuming  to  itself  the  exclusive  control  over  the 
metallic  money  of  the  country,  is,  at  least,  equally 
conclusive  against  allowing  individuals  to  manufac- 
ture and  to  issue  that  which  forms,  and  which  is  in- 
tended to  form,  the  almost  universal  substitute  for 
that  money. 

Thus  the  right  to  issue  the  substitutes  for  metallic 
money,  intended  to  circulate  in  the  place,  and  as  the 
representatives  of  the  precious  metals,  can  be  derived 
only  from  the  right  to  coin  that  metallic  money. 

The  exclusive  power  of  regulating  the  metallic  cur- 
rency of  the  country  would  seem  necessarily  to  imply, 
or  more  properly  to  include,  as  part  of  itself,  a power 
to  decide  how  far  that  currency  should  be  exclusive 
— how  far  any  substitute  should  interfere  with  it,  and 
what  that  substitute  should  be.^^  If  this  were  not 
true,  it  must  necessarily  follow  that  the  prerogative 
of  coining  money,  which  has  every  where  been  exer- 
cised by  the  sovereignty,  might  be  restrained,  impeded, 
counteracted  and  defeated  by  the  action  of  individu- 


284 


APPENDIX. 


als  or  of  associations.  In  the  words  of  Mr.  Tooke,  a 
practical  and  scientific  writer  of  the  highest  reputation: 
Hitherto  the  legislature  has  restricted  individuals 
under  the  severest  penalties,  from  establishing  private 
mints,  and  uttering  metallic  money  of  intrinsic  and 
indestructible  value;  yet,  with  a degree  of  inconsistency 
which  strikes  us  as  most  extraordinary  the  more  at- 
tentively we  consider  it,  our  law-makers  have  per- 
mitted individuals  to  establish  private  banks  of  cir- 
culation— and  to  utter  paper  money  which  a breath 
of  panic  may  at  any  time  destroy.  On  the  same 
principle  that  the  government  protects  the  public 
against  the  probable  insecurity  which  might  arise 
from  individuals  being  permitted  to  utter  metallic  cur- 
rency, it  should  guard  against  the  more  probable,  nay 
certain  insecurity  which  is  created  when  individuals 
utter  a paper  currency.  In  every  civilized  country, 
supplying  and  regulating  the  circulating  medium  is  a 
function  of  the  sovereign  prerogative.’^  And  the  au- 
thor of  the  admirable  Essay  on  Value,”  who  is 
among  the  most  able  and  zealous  of  the  advocates  of 
the  doctrines  of  free  trade  in  their  widest  application, 
states  it  as  an  obvious  and  incontestable  truth,  that 
government  having  undertaken  the  supply  of  the  cur- 
rency, ^‘in  order  to  facilitate  or  insure  the  accom- 
plishment of  its  purposes,  private  persons  may  be 
very  properly  restrained  from  any  proceedings  which 
would  tend  to  defeat  them.”  ^ ^ ^ ^ « jf  go- 
vernment has  determined,  for  any  reason,  to  have  a 
metallic  currency,  consisting  of  certain  coins,  here 
would  be  a plain  ground  for  restricting  the  dealer  in 
money  from  such  issues  of  paper  as  would  defeat  the 
design.” 

The  business  of  banking,”  observes  an  acnte  rea- 
soner  and  a practical  banker,  is  one  thing;  that  of 
issuing  a paper  money  is  another  thing.  There  is  no 
necessary  connection  between  the  two.  The  bankers 
in  London  and  Paris  are  bankers  strictly  so  called. 
They  are  lenders  of  their  own  and  other  people’s 


APPENDIX. 


285 


money.  They  must  obtain  it  by  industry  or  by  loan, 
before  they  can  lend  it.  They  do  not  ma^e  it.  The 
business  of  making  and  then  issuing  a paper  money 
on  loan  is  very  different  from  that  of  obtaining  a paper 
money  on  loan,  and  then  re-lending  it.’^  The  two 
operations,  although  thus  dearly  distinct  and  widely 
different,  are,  by  those  who  find  their  account  in  the 
present  vicious  system,  sedulously  sought  to  be  con- 
founded. To  banks  of  issue  is  confided  the  creation 
of  the  circulating  medium.  The  office  of  banks  of 
discount  is  to  assist  in  the  distribution  of  that  me- 
dium. The  duty  of  the  former  is  to  issue  the  circula- 
tion upon  such  principles  as  shall  cause  its  amount, 
and  the  value  of  its  denominations  to  vary,  as  they 
would,  were  the  currency  metallic.  The  only  object 
of  the  latter  is  so  to  use  their  available  funds,  as  to 
secure  upon  their  employment  the  highest  rate  of 
profit. 

Thus  it  is  that  in  all  civilized  countries  the  issue  of 
notes  for  circulation  is  always  with  the  consent,  ex- 
press or  implied,  of  the  supreme  authority,  which,  at 
its  discretion,  regulates  and  restrains  this  issue.  Hence 
in  all  cases  in  which  the  discharge  of  this  important 
function  has  been  committed  to  individuals,  or  to  asso- 
ciations, there  arise  the  questions — What  are  the  con- 
ditions upon  which  the  trust  shall  be  delegated? 
What  are  the  regulations  and  restraints  proper  to  be 
imposed  for  the  protection  of  the  public?  Evidently 
such,  and  such  only,  as,  while  they  interfere  in  the 
smallest  possible  degree  with  the  free  application  of 
capital,  and  the  natural  direction  of  industry  shall 
have  for  their  object  to  assimilate,  in  all  desirable 
properties,  these  issues  to  a currency  composed  of  the 
precious  metals,  and  as  far  as  practicable  to  confer 
upon  the  former  the  steadiness  and  the  stability  in 
value  which,  being  inherent  in  the  latter,  have  made 
them  the  universally  received  medium  of  exchange, 
and  the  “commodity  of  contract”  preferred  to  all 
others.  Prominent  and  most  efficacious  among  these 


286 


APPENDIX. 


conditions  is  the  unlimited  individual  liability  of  the 
issuing  parties. 

Let  it  be  observed,  however,  that  whilst  the  unlimi- 
ted responsibility  of  individuals  is,  with  entire  pro- 
priety, represented  as  furnishing,  to  the  public  a very 
strong  guarantee  against  fraud;  and  as  holding  out  to 
noteholders  and  to  depositors  increased  protection 
against  all  danger  of  ultimate  loss;  the  principle  affords 
little  or  no  security  against  those  alternate  expansions 
and  contractions  in  the  volume  of  the  currency,  and 
those  fluctuations  in  the  value  or  purchasing  power  of 
its  denominations,  which  tend  to  give  to  all  commer- 
cial undertakings  a gambling  character;  but  which  are 
inseparable  from  the  issue,  by  trading  associations,  of 
paper  substitutes  for  metallic  money;  and  which  ne- 
cessarily flow  from  a system  of  banking  and  of  cur- 
rency essentially  vicious  in  its  constitution,  and  defec- 
tive in  the  very  elements  of  its  organisation.  We 
admit  the  correctness  of  the  assertion  of  Sir  H.  Par- 
nell: That  all  the  public  has  lost  by  bank  failures  in 

Scotland,  since  banks  were  first  established,  amounts 
to  ^36,444,  and  that  no  such  thing  ever  occurs  in 
Scotland  as  a panic.^’  We  are  satisfied  of  the  truth 
of  the  facts  stated  by  Mr.  M’Culloch,  that  ^^In  1793 
and  in  1825,  when  so  many  of  the  English  country 
banks  were  swept  off,  there  was  not  a single  establish- 
ment in  Scotland  that  gave  way.^^  And  we  may  very 
satisfactorily  account  for  much  of  this  superior  sta- 
bility, by  the  then  greater  freedom  in  Scotland  of  the 
banking  business:  this  freedom  being  enjoyed  upon 
the  only  proper  condition  of  the  thorough  responsi- 
bility of  the  associated  parties.  We  are  convinced  of 
the  accuracy  of  the  statement  made  by  the  first  Lord 
of  the  Treasury  and  by  the  Chancellor  of  the  Eng- 
lish Exchequer:  That  the  Scotch  banks  have  stood 

firm  amidst  all  the  convulsions  in  the  money  market 
in  England.^^  It  is,  no  doubt,  true,  as  affirmed  by  Mr. 
Gilbart,  a bank  manager  of  great  experience  and  a 
practical  writer  of  established  reputation,  that  ‘^The 


APPENDIX. 


287 


enactment  which  renders  the  whole  property  of  every 
shareholder  answerable  for  the  debts  of  the  bank  is 
very  just  and  satisfactory.  It  is  satisfactory  to  the 
public  and  satisfactory  to  the  shareholder.^^  It  can 
not  be  denied  that  whilst  in  1837  and  1838,  bank  cre- 
ditors were  every  where  in  this  country  defrauded  by 
the  depreciation  of  bank  paper,  and  by  the  non  per- 
formance of  bank  promises;  and  whilst  the  same  thing 
has  again  partially  occurred  in  1839;  in  Great  Britain 

neither  depositors  nor  noteholders  have  lost  a shil- 
ling.^^  Mr.  Bailey,  a writer  of  the  very  highest  cha- 
racter for  power  of  logical  discrimination,  and  for  pene- 
trating sagacity  and  analytical  skill,  is  clearly  in  the 
right  when  he  asserts  that  the  legislature  acted 
wisely  in  not  interfering  to  lessen,’’  by  the  grant  of 
exceptions^  the  liability  of  individuals.”  Mr.  Nor- 
man, a prominent  director  of  the  Bank  of  England 
and  a writer  of  signal  ability,  was,  no  doubt,  cor- 
rectly informed,  when  he  admitted  the  “general  soli- 
dity of  the  Scotch  banks,”  when  he  stated,  that  “ insol- 
vency was  almost  unknown  among  them;”  and  when 
he  referred  to  their  well  established  reputation  as  “ se- 
cure places  of  deposite.” 

All  these  authorities  (and  their  number  might  easily 
be  extended)  are  direct  in  the  testimony  which  they 
bear  to  the  justice  and  the  expediency  of  the  princi- 
ple of  the  unrestrained  liability  of  individuals;  and 
their  evidence  is  conclusive  as  to  the  beneficial  nature 
of  the  results  springing  from  its  practical  application. 
It  is,  however,  not  on  that  account  the  less  true  that 
the  only  infallible  test  of  the  soundness  of  any  scheme 
of  paper  issues,  is  to  be  found  in  the  identity  of  the 
phenomena  with  those  which  would  take  place  with 
a currency  purely  and  exclusively  metallic,  and  “ it  is 
as  issi^ers  of  paper  money  that  the  Scotch  banks 
are  chiefly  open  to  criticism.  In  times  of  prosperity 
they  push  out  their  notes  and  credits  to  an  undue  ex- 
tent, and  are  consequently  compelled  to  diminish 
them  as  violently  when  circumstances  alter — thus  in- 


288 


APPENDIX. 


flicting  on  the  public  oscillations  in  the  currency  much 
more  violent  than  could  occur  with  a metallic  circu- 
lation^  or  with  paper  regulated  on  sound  principles  P 

Of  the  Scotch  banks,  as  of  all  others  assuming  the 
discharge  of  incompatible  functions,  and  organised 
upon  the  unsound  and  pernicious  system  of  making 
their  credit  issues  in  competition,  and  in  the  discount 
of  commercial  securities  bearing  interest,  it  may  with 
truth  be  affirmed  that  in  periods  of  excitement  and 
rising  prices,  they  stimulate  speculation  unduly,  and 
afford  a spectacle  of  specious  and  factitious  prosperity; 
while,  when  the  recoil  takes  place,  they  sweep  the 
solvent  and  comparatively  prudent  trader  into  the 
same  net  with  the  rash  adventurer,  and  lead  to  awful 
and  wide-spread  ruin.’’  Hence  it  is  that  in  periods 
of  commercial  difficulty,  no  country  is  said  to  suffer 
from  insolvency  more  severely  than  Scotland,  whilst 
of  Manchester,  where  banks  of  issue  have  never 
existed  until  recently,  and  then  to  a small  extent,”  it 
is  remarked  that  it  furnishes  an  interesting  and  in- 
structive contrast.” 

It  is  also  notorious  and  not  denied  that  in  Scotland 
the  use  of  gold  is  almost  unknown,  and  that  under 
the  appearance  of  a nominal  competition,  a real  com- 
bination exists  against  demands  for  specie  and  for  the 
maintenance  of  an  exclusive  paper  currency. 

There  is  no  principle  in  the  law  better  settled  than 
that  whatever  has  an  obvious  tendency  to  encourage 
guilty  negligence,  fraud  or  crime,  is  contrary  to  public 
policy.”  And  such,  in  the  very  nature  of  things,  is 
the  tendency  of  allowing  the  trader,  and  especially 
the  banker,  to  limit,  to  throw  off,  or  in  any  way  to 
restrict  his  natural  responsibility  or  his  legal  liability. 
From  this  liability  there  should  be  no  escape,  ‘^not 
even  by  express  promise  or  special  acceptance  any 
more  than  by  notice.” 


APPENDIX. 


289 


H. 


HISTORr  OF  THE  MONEY  CRISIS  OF  1818. 

Extracts  from  the  report  of  the  Committee  of  the  Senate  of  Pennsyl- 
vania^ appointed  to  inquire  into  the  extent  and  causes  of  the  present 
general  distress. 

In  the  Senate  of  Pennsylvania,  December  8,  1819. 
A motion  was  made  by  Mr.  Raguet  and  Mr.  Grosh, 
and  read  as  follows,  to  wit: 

Whereas  it  appears  that  a scene  of  distress  and 
pecuniary  embarrassment  unexampled  informer  years, 
has  been  of  late  exhibited  throughout  this  common- 
wealth. And  whereas,  at  a period  of  general  cala- 
mity, it  is  natural  for  the  people  to  expect  from  the 
legislature  such  an  investigation  into  the  causes  which 
have  produced  the  evils  under  which  they  labor,  as 
may  be  likely  to  mitigate  their  sufferings,  or  at  least 
to  prevent  their  recurrence.  And  whereas,  a proper 
regard  for  the  interests  of  posterity,  as  well  as  of  our 
constituents  requires,  that  an  exposition  of  the  actual 
condition  of  our  suffering  fellow  citizens,  as  well  as 
of  the  causes  which  have  been  instrumental  in  pro- 
ducing their  distress,  should  be  recorded  in  durable 
characters  on  the  journals  of  this  house.  Therefore, 

Be  it  resolved^  That  a committee  be  appointed  to 
inquire  into  the  extent  and  causes  of  the  present  gene- 
ral distress,  and  to  recommend  to  the  consideration  of 
the  legislature,  such  measures  as  in  their  opinion  may 
be  calculated  to  alleviate  the  public  suffering,  and  to 
prevent  the  recurrence  of  a similar  state  of  things. 

On  motion,  made  on  the  10th  of  December,  said 
resolution  was  again  read,  considered  and  adopted, 
and 

Ordered^  That  Messrs.  Raguet,  Hurst,  Eichelber- 
25 


290 


APPENDIX. 


ger,  Markley,  M’Meens^  Rogers  and  Breck,  be  a 
committee  for  the  purpose  therein  expressed. 

January  29,  1820.  Mr.  Raguet  from  the  foregoing 
committee,  made  report,  which  was  read  as  follows, 
to  wit. 

In  the  performance  of  a duty  of  such  high  import- 
ance as  that  which  has  been  entrusted  to  your  com- 
mittee, they  have  felt  it  incumbent  on  them  to  enter  at 
large  into  the  investigation  of  the  subject  contem- 
plated by  their  appointment,  in  order  that  the  people 
of  the  present  day  may  be  correctly  informed  as  to 
the  extent  and  causes  of  the  evils  by  which  they  are 
oppressed,  and  that  the  records  of  the  house  may  be 
furnished  with  a document,  which  may  afford  evi- 
dence at  a future  day  of  the  miseries  which  it  is  pos- 
sible to  inflict  upon  a people  by  errors  in  legislation 
and  by  the  bad  administration  of  incorporated  insti- 
tutions. 

In  ascertaining  the  extent  of  the  public  distress, 
your  committee  has  had  no  difficulties  to  encounter. 
Members  of  the  legislature  from  various  quarters  of 
the  stale  have  been  consulted  in  relation  to  this  sub- 
ject, and  their  written  testimony  in  answer  to  inter- 
rogatories addressed  to  them  by  the  committee,  has 
agreed  with  scarcely  an  exception,  upon  all  material 
points.  With  such  a respectable  weight  of  evidence 
added  to  that  which  has  been  derived  from  the  pro- 
thonotaries,  recorders  and  sheriffs  of  the  different 
counties,  from  an  intercourse  with  numerous  pri- 
vate citizens  residing  in  different  parts  of  the  state,  as 
well  as  from  the  various  petitions  presented  to  the 
legislature,  your  committee  can  safely  assert,  that  a 
distress  unexampled  in  our  country  since  the  period 
of  its  independence,  prevails  throughout  the  common- 
wealth. This  distress  exhibits  itself  under  the  varied 
forms  of 

1.  Ruinous  sacrifices  of  landed  property  at  sheriff’s 
sales,  whereby  in  many  cases  lands  and  houses  have 
been  sold  at  less  than  a half,  a third,  or  a fourth  of 


APPENDIX. 


291 


their  former  value,  thereby  depriving  of  their  homes 
and  of  the  fruits  of  laborious  years,  a vast  number  of 
our  industrious  farmers,  some  of  whom  have  been 
driven  to  seek  in  the  uncultivated  forests  of  the  west, 
that  shelter  of  which  they  have  been  deprived  in  their 
native  state. 

2.  Forced  sales  of  merchandise,  household  goods, 
farming  stock  and  utensils,  at  prices  far  below  the 
cost  of  production,  by  which  numerous  families  have 
been  deprived  of  the  common  necessaries  of  life,  and 
of  the  implements  of  their  trade. 

3.  Numerous  bankruptcies  and  pecuniary  embar- 
rassments of  every  description,  as  well  among  the 
agricultural  and  manufacturing,  as  the  mercantile 
classes. 

5.  A general  scarcity  of  money  throughout  the 
country^  which  renders  it  almost  impossible  for  the 
husbandman  or  other  owner  of  real  estate  to  borrow 
even  at  a usurious  interest,  and  where  landed  security 
of  the  most  indubitable  character  is  offered  as  a pledge. 
A similar  difficulty  of  procuring  on  loan  had  existed 
in  the  metropolis  previous  to  October  last,  but  has 
since  then  been  partially  removed. 

5.  A general  suspension  of  labor,  the  only  legiti- 
mate source  of  wealth,  in  our  cities  and  towns,  by 
which  thousands  of  our  most  useful  citizens  are  ren- 
dered destitute  of  the  means  of  support,  and  are  re- 
duced to  the  extremity  of  poverty  and  despair. 

6.  An  almost  entire  cessation  of  the  usual  circula- 
tion of  commodities,  and  a consequent  stagnation  of 
business,  which  is  limited  to  the  mere  purchase  and 
sale  of  the  necessaries  of  life,  and  of  such  articles 
of  consumption  as  are  absolutely  required  by  the 
season. 

7.  An  universal  suspension  of  all  large  manufac- 
turing operations,  by  which  in  addition  to  the  dis- 
missal of  the  numerous  productive  laborers  heretofore 
engaged  therein^  who  could  find  no  other  employ 


292 


APPENDIX. 


ment^  the  public  loses  the  revenue  of  the  capital 
invested  in  machinery  and  buildings. 

8.  Usurious  extortions,  whereby  corporations  insti- 
tuted for  banking,  insurance  and  other  purposes,  in 
violation  of  law,  possess  themselves  of  the  products 
of  industry  without  granting  an  equivalent. 

9.  The  overflowing  of  our  prisons  with  insolvent 
debtors,  most  of  whom  are  confined  for  trifling  sums, 
whereby  the  community  loses  a portion  of  its  effect- 
ive labor,  and  is  compelled  to  support  families  by 
charity,  who  have  thus  been  deprived  of  their  pro- 
tectors. 

10.  Numerous  law  suits  upon  the  dockets  of  our 
courts  and  of  our  justices  of  the  peace,  which  lead  to 
extravagant  costs  and  the  loss  of  a great  portion  of 
valuable  time. 

11.  Vexatious  losses  arising  from  the  depreciation 
and  fluctuation  in  the  value  of  bank  notes,  the  impo- 
sitions of  brokers  and  the  frauds  of  counterfeiters. 

12.  A general  inability  in  the  community  to  meet 
with  punctuality,  the  payment  of  their  debts  even 
for  family  expenses,  which  is  experienced  as  well  by 
those  who  are  wealthy  in  property,  as  by  those  who 
have  hitherto  relied  upon  their  current  receipts  to 
discharge  their  current  engagements. 

With  such  a mass  of  evils  to  oppress  them,  it  can- 
not be  wondered  at  that  the  people  should  be  dispi- 
rited, and  that  they  should  look  to  their  representa- 
tives for  relief.  Their  patient  endurance  of  sufferings, 
which  can  only  be  imagined  by  those  who  have 
habitually  intermingled  with  them  at  their  homes 
and  by  their  fire  sides,  merits  the  commendation  of 
the  legislature,  and  prefers  a powerful  claim  to  their 
interference. 

Having  thus  enumerated  the  most  prominent  fea- 
tures of  the  general  distress,  your  committee  will 
proceed  to  point  out  the  cause  which  in  their  opinion 
has  occasioned  it.  That  cause  is  to  be  found  chiefly 


APPENDIX. 


293 


in  the  abuses  of  the  banking  system,  which  abuses 
consist, in  the  excessive  number  of  banks,  and 
secondly^  in  their  universal  bad  administration.  For 
the  first  of  these  abuses  the  people  have  to  reproach 
themselves,  for  having  urged  the  legislature  to  depart 
from  that  truly  republican  doctrine,  which  influenced 
the  deliberations  of  our  early  assemblies,  and  which 
taught  that  the  incorporation  of  the  monied  interest 
already  sufficiently  powerful  of  itself  was  but  the 
creation  of  odious  aristocracies^  hostile  to  the  spirit 
of  free  government^  and  subversive  of  the  rights 
and  liberties  of  the  people.  The  second  abuse,  the 
mismanagement  of  banks,  is  to  be  ascribed  to  a gene- 
ral ignorance  of  the  true  theory  of  currency  and 
banking,  and  to  the  avarice  of  speculators,  desirous 
of  acquiring  the  property  of  others,  by  an  artificial 
rise  in  the  nominal  value  of  stock,  and  by  the  sharing 
of  usurious  dividends. 

In  order  that  this  subject  may  be  clearly  understood, 
your  committee  have  thought  that  the  following  con- 
cise history  of  banking  in  Pennsylvania,  would  be 
acceptable. 

The  first  bank  which  was  established  in  the  state, 
and  indeed  in  the  United  States,  was  the  Bank  of 
North  America,  which  was  chartered  by  congress  on 
the  31st  day  of  December,  1781,  with  a capital  not 
to  exceed  ten  millions  of  dollars,  and  without  any 
limits  being  assigned  as  to  its  duration.  This  charter 
was  confirmed  by  the  state  of  Pennsylvania,  on  the 
1st  day  of  April,  1782.  This  bank  commenced  and 
continued  its  operations  upon  a capital  paid  in  of 
^400,000,  and  as  its  credit  stood  high,  and  the  Union 
was  deficient  in  a circulating  medium,  it  was  enabled 
to  extend  its  issues  vastly  beyond  the  amount  of  its 
capital.  The  extent  of  its  loans  inay  be  inferred 
from  the  rate  of  its  dividends,  which  were  as  high  as 
12  and  even  16  per  cent,  per  annum.  The  exten- 
sive and  distant  circulation  of  the  notes  of  this  bank 
occasioned  by  the  disbursements  of  the  general  govern- 
25^ 


294 


APPENDIX. 


merit  which  was  a heavy  borrower,  emboldened  its 
directors,  and  led  them  to  overstep  the  bounds  of  dis- 
cretion. The  channels  of  circulation  becoming  over- 
charged with  paper,  and  the  public  beginning  to  doubt 
the  ability  of  the  bank  to  redeem  its  notes  on  demand, 
naturally  led  to  the  consequences,  which,  with  the 
unerring  certainty  of  fate,  will  sooner  or  later  result 
from  an  evtravagant  emission  of  paper.  The  notes 
returned  for  payment,  and  with  the  diminution  of  its 
specie  means,  the  bank  to  sustain  its  credit,  was  com- 
pelled to  resort  to  the  measure  of  calling  upon  its 
debtors  for  payment.  This  reduction  of  bank  loans 
operated  in  its  day,  in  precisely  the  same  manner  that 
we  have  seen  it  in  ours.  A general  pressure  for  mo- 
ney, bankruptcies,  usurious  extortions,  the  disappear- 
ance of  specie,  and  an  impossibility  of  procuring  loans 
at  legal  interest,  were  among  the  evils  attendant  upon 
it.  For  the  truth  of  this  assertion,  your  committee 
beg  leave  to  refer  to  the  journals  of  the  House  of  Re- 
presentatives of  the  21st  and  23d  days  of  March,  1785, 
by  which  it  will  appear,  that  so  great  were  the  evils 
which  resulted  from  the  operations  of  this  bank,  that 
a petition  from  a number  of  inhabitants  of  Philadel- 
phia and  of  the  counties  of  Chester  and  Bucks  were 
presented  to  the  legislature,  praying  for  a repeal  of 
its  charter.  These  petitions  were  referred  to  a com- 
mittee, who  on  the  25th  of  the  same  month  reported^ 
that  a bill  should  be  brought  in  to  repeal  the  charter, 
which  was  accordingly  done  at  the  ensuing  session, 
on  the  13M  day  of  September^  1785.  The  bank 
however  claiming  the  right  of  prosecuting  its  business 
under  the  charter  which  it  held  from  congress,  con- 
tinued its  operations,  and  the  legislature  at  a subse- 
quent date,  viz.  on  the  17th  day  of  March,  1787, 
revived  its  charter,  limiting  its  capital  to  2,000,000  of 
dollars,  (of  which  about  830,000  only  were  raised,) 
and  its  duration  to  fourteen  years.  This  charter  has 

* See  the  report  at  full  length  in  Journal  of  28th  March,  1785. 


APPENDIX. 


295 


been  since  extended  for  two  successive  periods  of 
fourteen  and  ten  years,  on  the  29th  of  March,  1799, 
and  the  28th  of  March,  1814,  and  Avill  expire  on  the 
17th  day  of  March,  1825. 

On  the  25th  day  of  February,  1791,  the  first  bank 
of  the  United  States  was  chartered  by  congress  with 
a capital  of  ten  millions  of  dollars,  and  located  at 
Philadelphia.  Its  charter  expired  without  renewal 
on  the  4th  day  of  March,  1811. 

On  the  30th.  day  of  March,  1793,  the  Bank  of 
Pennsylvania  was  incorporated  for  twenty  years. 
The  charter  was  renewed  on  the  14th  of  February, 
1810,  for  twenty  years  longer,  with  an  increase  of 
capital  which  is  now  {^2,500,000,  and  will  expire  the 
4th  of  March,  1833.  This  bank  was  authorised  to 
have  branches,  of  which  it  established  four,  viz.  at 
Lancaster,  Reading,  Easton  and  Pittsburgh,  the  last 
of  which  has  been  discontinued. 

On  the  5th  of  March,  1804,  the  Philadelphia  Bank 
was  chartered,  after  having  been  some  time  in  opera- 
tion without  a charter,  to  continue  until  1st  of  May, 
1814,  with  a capital  not  to  exceed  two  millions  of 
dollars;  of  which  1,800,000  were  raised.  On  the 
1st  day  of  March,  1806,  it  was  renewed  for  10  years, 
and  will  expire  on  the  1st  day  of  May,  1824.  It  was 
authorised  by  an  act  of  3d  March,  1809,  to  institute 
branches,  of  which  it  established  four,  viz.  at  Wilkes- 
barre,  Washington,  Columbia  and  Harrisburg,  the 
last  two  of  which  have  been  withdrawn. 

On  the  16th  of  March,  1809,  the  Farmers  and  Me- 
chanics’ bank  was  incorporated,  with  a capital  of 
1,250,000  dollars,  to  continue  until  the  1st  of  May, 
1824. 

Some  two  or  three  years  prior  to  the  expiration  of 
the  charter  of  the  Bank  of  the  United  States,  applica- 
tion was  made  to  congress  for  its  renewal;  which 
having  failed,  overtures  were  made  to  the  legislature 
of  Pennsylvania,  but  without  success.  The  anxiety 
displayed  by  the  stockholders  of  this  bank  to  continue 


296 


APPENDIX. 


their  business,  and  the  successful  appearance  of  their 
dividends  added  to  the  location  of  branches  by  the 
Pennsylvania  Bank  in  the  country^  very  naturally 
excited  the  attention  of  the  public,  and  particularly 
of  the  inhabitants  of  some  of  the  interior  counties  of 
the  state,  who  fancied  that  much  of  the  prosperity  of 
cities  was  to  be  traced  to  the  establishment  of  banks, 
and  that  if  that  were  the  case,  there  was  no  reason 
why  the  country  should  not  participate  in  their  ad- 
vantages. Such  considerations  as  these,  urged  on  by 
the  desire  of  accumulating  wealth  without  the  dull 
exercise  of  labor,  engendered  a spirit  of  speculation. 
It  was  supposed  that  the  mere  establishment  of  banks 
would  of  itself  create  capital,  that  a bare  promise  to 
pay  money ^ was  money  itself,  and  that  a nominal 
rise  in  the  prices  of  land  and  commodities,  ever  at- 
tendant upon  a plenty  of  money,  was  a real  increase 
of  substantial  wealth.  The  theory  was  plausible, 
and  too  well  succeeded.  The  Farmers’  Bank,  with 
a capital  of  ®300,000  dollars,  was  established  in  the 
county  of  Lancaster,  in  the  beginning  of  the  year 
1810,  and  was  accompanied  by  several  others  in  the 
city,  as  well  as  in  other  parts  of  the  state. 

These  early  symptoms  of  a mania  for  banking  in- 
duced the  legislature,  on  the  19th  of  March,  1810,  to 
enact  a law  prohibiting  unincorporated  associations 
from  issuing  notes,  or  pursuing  any  of  the  operations 
of  banks,  but  in  defiance  of  its  provisions,  the  system 
was  persevered  in,  and  even  companies  incorporated 
for  the  purpose  of  constructing  bridges,  departed  from 
the  spirit  of  their  charters,  converted  themselves  into 
banks,  and  emitted  notes  for  circulation. 

The  evils,  however,  which  would  have  flowed  from 
this  banking  spirit^  would  soon  have  been  checked, 
by  the  usual  corrective,  viz.  the  return  of  the  notes 
for  payment^  had  not  the  war  which  was  declared 
in  June,  1812,  interposed.  Prior  to  that  period,  the 
emissions  of  our  banks  were  regulated  with  a con- 
stant regard  to  their  liability  to  be  called  upon  for  the 


APPENDIX. 


297 


payment  of  their  notes  in  coin.  The  periodical  de- 
mand for  dollars  for  the  China  and  India  trade,  which 
regularly  occurred  every  spring,  was  a check  upon 
the  overtrading  spirit,  which  has  always  characterised 
corporations  exempt  from  individual  responsibility. 
The  merchants  at  that  day,  were  not  afraid  to  demand 
their  rights,  and  those  who  held  claims  upon  the 
banks  in  the  nature  of  notes  or  deposites,  would  make 
a demand  for  an  hundred  thousand  dollars,  with  less 
hesitation  than  they  now  display  in  asking  for  a single 
thousand.  Banks  were  then,  what  they  should  al- 
ways be,  the  servants  of  the  public,  and  until  they 
are  again  reduced  to  the  relation  in  which  they  ought 
to  stand  to  the  community,  their  operations  must  ever 
continue  to  be  injurious.  Without  liahilily  to 
prompt  payment^  uninfluenced  by  any  considera- 
tions of  fear^  forbearance^  or  delicacy^  on  the  part 
of  the  publicy  the  community  has  no  guarantee 
against  a depreciated  and  fluctuating  currency, 
I'he  war,  as  might  naturally  be  expected,  put  a 
temporary  stop  to  the  exportation  of  specie,  and  there- 
by removed  the  only  sure  check  against  inordinate 
issues  of  paper,  which  can  possibly  exist.  This  ces- 
sation of  the  returning  of  notes  for  payment,  had  the 
effect  of  inviting  the  banks  to  enlarge  their  issues. 
Loans  were  made  to  government  to  an  immense 
amount,  and  to  individuals  vastly  beyond  what  the 
absence  of  foreign  commerce  justified,  and  a gradual 
depreciation  of  the  currency  was  the  result.  The 
increase  of  dividends  and  the  facility  with  which 
they  appeared  to  be  made,  extended  throughout  the 
whole  commonwealth  the  spirit  of  speculation,  already 
introduced  into  some  counties.  The  apparent  suc- 
cess of  the  Farmers’  Bank  of  Lancaster,  which  from 
the  enormous  extent  of  its  issues,  was  enabled  to 
divide  upwards  of  twelve  per  cent,  per  annum;  and 
to  accommodate  its  stockholders  with  loans  to  dou- 
ble the  amount  of  their  stock,  had  a powerful  influ- 
ence upon  the  public  mind.  A bank  by  many  was 


29S 


APPENDIX. 


no  longer  regarded  as  an  instrument  by  which  the 
surplus  wealth  of  capitalists  could  be  conveniently 
loaned  to  their  industrious  fellow  citizens,  but  as  a 
mint  in  which  money  could  be  coined  at  pleasure,  for 
those  who  did  not  possess  it  before.  Under  these 
delusive  impressions, associations  of  individuals  sprang 
up  in  every  quarter,  holding  out  inducements  to  the 
farmer,  the  merchant,  the  manufacturer  and  mecha- 
nic, to  abandon  the  dull  pursuits  of  a laborious  life, 
for  the  golden  dreams  of  an  artificial  fortune. 

The  liability  however  to  individual  ruin,  attendant 
upon  unchartered  copartnerships,  restrained  in  a de- 
gree, the  banking  mania,  and  impelled  the  projectors 
to  apply  for  a legislative  sanction.  During  the  session 
of  1812-13,  a bill  to  incorporate  twenty-five  institu- 
tions, the  capitals  of  which  amounted  to  9,525,000 
dollars,  was  passed  by  both  houses  of  the  Legislature 
by  a bare  majority  of  one  vote  in  each.  The  bill  was 
returned  by  the  governor  with  his  objections,  which 
were  sensible  and  cogent,  and  on  a reconsideration 
the  votes  were  38  to  40.  At  the  following  session  the 
subject  was  renewed  with  increased  ardor,  and  a bill 
authorising  the  incorporation  of  forty-one  banking  in- 
stitutions with  capitals  amounting  to  upwards  of  17, 
000,000  of  dollars,  was  passed  by  a large  majority. — 
This  bill  was  also  returned  by  the  governor  with  ad- 
ditional objections,  but  two  thirds  of  both  houses 
(many  members  of  which  were  pledged  to  their  con- 
stitutents  to  that  effect)  agreeing  on  its  passage,  it  be- 
came a law  on  the  21st  of  March  1814,  and  thus  was 
inflicted  upon  the  coniinonwealth  an  evil  of  a more 
disastrous  nature  than  has  ever  been  experienced  by 
its  citizens.  Under  this  law  thirty-seven  banks,  four 
of  which  were  established  in  Philadelphia,  actually 
went  into  operation,  the  charters  of  which  will  ex- 
pire on  the  1st  of  April,  1825. 

The  immediate  commencement  of  a number  of  these 
banks,  with  scarcely  a bona  fide  capital  equal  to  the 
first  instalment, ybr  the  convenient  mode  of  discount- 


APPENDIX. 


299 


ing  stock  notes  to  meet  the  subsequent  payments 
was  soon  discovered^  increased  the  mass  of  paper 
credits  already  too  redundant,  and  depreciated  the 
whole  circulating  medium  so  far  below  a specie  value, 
as  to  excite  a want  of  confidence  in  its  convertibility. 
In  the  absenee  of  a foreign  demand  for  specie  a do- 
mestic  one  arose.  The  laws  of  the  New  England 
states  had  been  so  rigorous  upon  the  subject  of  banks 
which  were  liable  to  a penalty  of  12  per  cent,  per  an- 
num for  the  non-payment  of  their  notes,  that  no  de- 
preciation of  their  currency  took  place.  The  conse- 
quence thereof  was,  that  the  difference  between  the 
New  England  prices  of  commodities,  stocks  and  foreign 
bills  of  exchange,  and  those  of  Pennsylvania  was 
equal  to  the  extent  of  the  depreciation  of  the  currency 
of  the  latter,  and  as  our  bank  notes  were  at  that  time 
redeemable  on  demand,  the  most  profitable  remittance 
which  could  be  made  to  New  England  in  exchange 
for  her  commodities  was  specie,  and  this  demand  crea- 
ted a run  upon  the  banks,  which  they  were  not  able 
to  withstand.  The  situation  of  the  southern  and  of 
the  western  banks  was  precisely  similar  to  that  of  our 
own.  All  had  over  issued,  and  a general  depreciation 
had  ensued.  The  same  causes  produced  the  same 
effects,  and  a general  stoppage  of  payment  of  all  the 
banks  in  the  United  States,  except  those  of  New  Eng- 
land, took  place  in  August  and  September,  1814. — 
The  New  England  demand,  it  is  true,  was  increased 
by  two  causes,  viz:  firsts  by  facilities  in  foreign  trade 
through  neutral  vessels,  which  were  afforded  them  by 
an  exemption  from  the  blockade  of  the  enemy,  and 
secondly^  by  a well  grounded  apprehension,  that  the 
southern  banks  from  their  extensive  emissions  would 
necessarily  become  embarrassed.  Certain  it  is,  how- 
ever, that  all  these  causes  combined,  could  not  have 
produced  a general  suspension  of  payment,  had  our 
banks  observed  the  same  caution  in  their  issues  as 
that  which  characterised  the  banks  of  the  Eastern 
states. 


300 


APPENDIX. 


At  the  time  of  the  susperxsion  of  our  city  banks  a 
public  meeting  of  merchants  and  others  was  held, 
who  publicly  sanctioned  the  measure,  under  a pledge 
given  by  the  banks,  that  as  soon  as  the  war  was  ter- 
minated, specie  payments  would  be  resumed.  That 
this  measure  was  intended,  is  evident  from  the  cur- 
tailment of  loans  immediately  consequent  upon  the 
suspension. 

But  unhappily  the  redemption  of  the  pledge  was 
not  demanded  by  the  public  at  the  stipulated  time, 
and  the  banks  urged  on  by  cupidity,  and  losing  sight 
of  moral  obligation  in  their  lust  for  profit,  launched 
out  into  an  extent  of  issues,  unexampled  in  the  annals 
of  folly.  The  fulfilling  of  a promise  to  pay  money, 
by  tendering  another  \}Xom\SQ  equally  false^  sanctioned 
by  the  public  acquiescence,  led  to  the  organization  of 
additional  banks,  under  the  act  of  March  1814,  which 
had  not  until  then  been  attempted  to  be  formed,  and  a 
scene  of  indiscretion  in  the  loaning  of  bank  credits 
was  every  where  exhibited,  which  realised  the  anti- 
cipations of  those  who  had  foretold  the  ruinous  effects 
of  the  paper  system.  Money  lost  its  value.  The  notes 
of  the  city  banks  became  depreciated  20  per  cent,  and 
those  of  the  country  banks  from  25  to  50,  and  specie 
so  entirely  disappeared  from  circulation,  that  even  the 
fractional  parts  of  a dollar  were  substituted  by  small 
notes  and  tickets,  issued  by  banks,  corporations  and 
individuals.  The  depreciation  of  money  enhancing 
the  prices  of  every  species  of  property  and  commodity, 
appeared  like  a i^eal  rise  in  value,  and  led  to  all  the 
consequences  which  are  ever  attendant  upon  a grad- 
ual advance  of  prices.  The  false  delusions  of  artifi- 
cial wealth  increased  the  demand  of  the  farmer  for 
foreign  productions,  and  led  him  to  consume  in  anti- 
cipation of  his  crops.  The  country  trader  seduced  by 
a demand  for  more  than  his  ordinary  supply  of  mer- 
chandise, was  tempted  to  the  extension  of  his  credit, 
and  filled  his  store  at  the  most  extravagant  prices  with 
goods  vastly  beyond  what  the  actual  resources  of  his 


APPENDIX. 


301 


customers  could  pay  for,  whilst  the  importing  mer- 
chant having  no  guide  to  ascertain  the  real  wants  of 
the  community  but  the  eagerness  of  retailers  to  pur- 
chase his  commodities,  sent  orders  abroad  for  a supply 
of  manufactures  wholly  disproportioned  to  the  effective 
demand  of  the  country.  Individuals  of  every  profes- 
sion were  tempted  to  embark  in  speculation,  and  the 
whole  community  was  literally  plunged  into  debt. — 
The  plenty  of  money,  as  it  was  called,  was  so  pro- 
fuse, that  the  managers  of  the  banks  were  fearful  they 
could  not  find  a demand  for  all  they  could  fabricate, 
and  it  was  no  unfrequent  occurrence  to  hear  solicita- 
tions used  to  individuals  to  become  borrowers,  under 
promises  as  to  indulgence,  the  most  tempting. 

Such  continued  to  be  the  state  of  things  until  to- 
wards the  close  of  the  year  1815.  At  that  time  the 
doctrine  so  generally  taught  and  so  generally  received 
by  the  great  mass  of  the  community,  that  the  paper 
currency  was  not  depreciated  but  that  specie  had  risen 
in  value,  began  to  be  abandoned.  The  intelligent  part 
of  the  people  became  convinced,  that  although  the 
nominal  prices  of  property  and  commodities  had  been 
advanced,  the  substantial  wealth  of  society  had  abso- 
lutely diminished,  and  the  evils  attendant  upon  a de- 
preciated and  a perpetually  fluctuating  currency  were 
universally  acknowledged.  Each  city,  town  and  coun- 
ty, had  its  own  local  currency,  bearing  no  equivalen- 
cy with,  or  a fixed  proportion  to  any  other;  the  conse- 
quence of  which  was,  that  a new  and  extensive  class 
of  brokers  sprang  into  existence,  who  have  ever  since 
been  supported  at  the  expense  of  those  who  have  been 
defrauded  by  the  banks  of  their  just  and  indisputable 
rights.  Counterfeiters  also  added  to  the  mass  of  paper 
in  circulation,  and  the  difficulty  of  detection  where  so 
many  signatures  were  current,  invited  to  an  increase 
of  their  numbers. 

The  plan  about  this  time  projected  of  establishing 
a national  bank  with  a commanding  capital,  held  forth 
an  expectation,  that  the  desired  restoration  of  the  cur- 
26 


302 


APPENDIX. 


rency  was  about  to  be  effected.  Petitions  in  favor  of 
the  measure  were  presented  to  congress,  and  the  gen- 
eral government  weary  of  the  embarrassments  to 
which  its  fiscal  concerns  had  been  subjected,  from  a 
currency  varying  not  only  in  every  state  but  in  almost 
every  village,  (for  the  banking  system  had  by  this 
time  extended  itself  through  the  middle,  southern  and 
western  states)  chartered  the  present  Bank  of  the 
United  States  with  a capital  of  thirty  five  millions  of 
dollars  on  the  10th  day  of  April,  1816,  with  corporate 
powers  which  will  expire  on  the  3d  of  March,  1836. 

No  sooner  was  this  measure  adopted,  than  the  nu- 
merous city  banks,  alarmed  for  their  safety,  resolved 
upon  a retrograde  movement,  and  with  the  reduction 
of  their  loans,  commenced  a reaction,  which  was  ac- 
companied by  great  mercantile  distress.  The  result 
of  this  procedure,  however,  was  a gradual  melioration 
of  the  currency,  insomuch  that  by  the  month  of  July 
of  that  year  the  depreciation  of  the  notes  of  the  banks 
in  Philadelphia  was  brought  to  7 or  8 per  cent,  and  by 
the  month  of  December  to  considerably  less. 

The  Bank  of  the  United  States,  the  subscriptions  to 
which  were  opened  on  the  1st  Monday  of  July,  1816, 
commenced  its  operations  about  the  1st  of  January, 
1817,  and  had  it  been  conducted  with  the  discretion 
and  wisdom  which  were  essential  to  so  powerful  a 
machine,  its  influence  might  have  been  productive  of 
the  most  happy  results.  The  public  was  aware  that 
the  currency  of  the  state  banks  was  still  depreciated 
from  excess,  and  that  nothing  but  a further  reduction 
of  their  issues,  could  remove  its  unsoundness;  and  yet 
with  this  fact,  evident  to  the  most  limited  capacity,  the 
directors  of  the  new  bank  fancied,  that  if  they  could  only 
persuade  the  city  banks  to  call  that  a sound  currency 
which  was  in  reality  an  unsound  one,  the  evil  of  de- 
preciation would  be  cured,  and  they  accordingly  pro- 
posed to  them  to  enter  into  an  agreement  to  resume 
specie  payments  on  the  21st  of  February  following. 
The  city  banks,  sensible  that  their  power  over  the 


APPENDIX. 


303 


community  was  so  great,  that  few  individuals  would 
have  the  boldness  to  make  large  demands  upon  them 
for  coin,  and  relying  upon  that  forbearance  which  had 
hitherto  been  extended  to  them  by  an  injured  public, 
who  had  been  for  two  years  and  a half  paying  them 
6 per  cent,  per  annum  for  the  use  of  their  dishonored 
bills,  consented  to  the  arrangement,  and  specie  pay- 
ments were  accordingly  nomina/lij  resumed  on  the 
appointed  day.  We  say  nominally^  because  in  point 
of  fact,  a bona  fide  resumption  did  not  take  place  as 
is  evident  from  the  well  known  circumstance,  that  for 
a long  time  after  that  period,  American  as  well  as 
foreign  coins  would  command  on  the  spot  a price  in 
city  bank  notes  above  their  nominal  value.  Deprecia- 
tion can  as  well  result  from  the  forbearance  of  the  pub- 
lic to  demand  their  rights,  as  from  the  refusal  of  the 
banks  to  pay  their  engagements;  and  the  arrangement 
alluded  to,  was  not  any  real  resumption  of  cash  pay- 
ments, but  a mere  change  of  one  species  of  inconver- 
tibility for  another.  No  sooner,  however,  had  the  di- 
rectors of  the  national  bank  succeeded  in  the  desirable 
object  of  rendering  depreciated  paper  an  equivalent 
for  their  own  convertible  notes,  than,  instead  of  re- 
flecting from  an  acquaintance  with  general  principles, 
and  from  the  experience  of  the  past,  that  the  channels 
of  circulation  could  contain  without  depreciation,  but 
a limited  amount  of  paper  credits,  and  that  that  amount 
was  already  in  those  channels,  they  began  to  add  to 
the  mass  already  redundant,  by  emissions  of  their  own 
notes;  and  in  the  course  of  a few  months  added  to  the 
mass  of  bank  loans  an  amount  greatly  beyond  the  re- 
ductions which  had  been  made.  By  this  means  the 
currency,  although  nominally  convertible,  was  depre- 
ciated below  its  former  low  state,  and  was  thrown 
back,  instead  of  being  advanced  on  the  road  of  resto- 
ration; and  thus  was  rendered  nugatory  all  the  pain 
and  embarrassment  which  the  public  had  suffered  from 
the  former  curtailments  of  the  state  banks. 

This  unwise  procedure  of  replunging  the  people  in- 


304 


APPENDIX. 


to  the  debts  from  which  they  had  been  partially  ex- 
tricated, and  of  involving  others  who  had  hitherto  es- 
caped, was  continued  for  a time;  but  the  dreadful  day 
of  retribution  at  length  arrived.  The  bank  discovered 
almost  too  late,  that  its  issues  had  been  extended  be- 
yond the  limits  of  safety,  and  that  it  was  completely 
in  the  power  of  its  creditors.  It  also  foresaw  that  the 
payment  of  that  portion  of  the  Louisiana  debt,  re- 
deemable on  the  21st  of  October  ISIS,  which  was  held 
by  foreigners,  might  occasion  a demand  for  a consid- 
erable amount  of  coin,  that  the  enhanced  prices  of 
China,  India  and  other  goods  occasioned  by  the  de- 
preciation of  the  currency  from  the  over  issues  of 
itself  and  the  state  banks^  would  lead  to  a demand 
for  specie,  and  that  as  it  was  professedly  a specie  bank, 
liable,  under  a penalty  of  12  per  cent,  per  annum  to 
pay  its  notes  on  demand,  the  same  delicacy  and  for- 
bearance would  not  be  extended  towards  it  as  to  the 
state  banks.  These  considerations  impelled  it  to  seek 
its  own  safety,  and  from  that  moment  a system  of  re- 
duction commenced.  This  reduction  operating  upon 
the  state  banks,  which  had  not  profited  by  the  oppor- 
tunity afforded  them  of  contracting  their  loans  whilst 
the  other  was  extending,  obliged  them  also  to  diminish 
their  transactions,  and  a general  curtailment  ensued, 
which  has  not  yet  had  its  consummation.  The  se- 
verity of  the  second  pressure  commenced  in  the  city 
in  October  IS  18,  and  was  continued  without  intermis- 
sion for  a year;  at  the  expiration  of  which  time  it  is 
said  that  the  reductions  made  there  by  the  national 
bank  alone  have  exceeded  seven  millions  of  dollars,  and 
those  by  the  other  banks  probably  two  or  four  more. 
The  reductions  of  the  country  banks  during  the  three 
last  years  may  be  inferred  from  the  following  statement 
which  exhibits  the  amount  of  their  notes  in  circulation 
at  four  different  periods. 


November  1, 

1816, 

g4, 756, 460 

Do. 

1817, 

3,782,760 

Do. 

1818, 

3,011,153 

Do. 

1819, 

1,318,976 

APPENDIX. 


305 


From  the  foregoing  history  it  will  be  seen,  what  in- 
fluence has  been  produced  upon  the  affairs  of  the 
community  by  the  operations  of  the  banking  system. 
Real  property  has  been  raised  in  nominal  value,  and 
thousands  of  individuals  have  been  led  into  specula- 
tions, who  without  the  facility  of  bank  loans  would 
never  have  been  thus  seduced.  The  gradual  nominal 
rise  in  the  price  of  land,  has  produced  an  artificial  ap- 
pearance of  increasing  wealth  which  has  led  to  the 
indulging  of  extravagance  and  luxury,  and  to  the  neg- 
lect of  productive  industry.  Foreign  importation  and 
domestic  consumption  have  thus  been  carried  to  an 
extent,  far  beyond  what  the  actual  resources  of  the 
country  and  people  would  justify,  and  in  pursuing  a 
shadow  the  community  has  lost  sight  of  the  sub- 
stance, ^ ^ ^ ^ 

Your  committee  is  sensibly  impressed  with  the  dan- 
gers which  may  hereafter  arise  from  the  renewal  and 
creation  of  bank  charters,  and  as  they  have  deemed 
it  to  be  within  the  limits  embraced  by  the  resolution 
under  which  they  act,  they  take  the  liberty  of  giving 
to  the  Senate  their  ideas  of  the  provisions  which  should 
be  incorporated  in  every  charter  of  a bank  hereafter 
sanctioned  by  the  legislature.  They  are  as  follows: 
First,  A penalty  of  twelve  per  cent,  per  annum 
in  addition  to  a forfeiture  of  the  charter,  should  be  im- 
posed upon  the  amount  of  all  notes  and  deposits  not 
redeemed  in  specie  on  demand. 

Secondly,  No  bank  should  be  allowed  at  any  time 
to  loan  more  than  fifty  per  cent,  beyond  the  amount  of 
its  capital. 

Thirdly,  All  profits  above  six  per  cent,  should 
be  equally  divided  between  the  stockholders  and  the 
state,  the  amount  accruing  to  the  latter  to  be  specifi- 
cally appropriated  to  internal  improvements.  The 
justice  of  this  provision  is  founded  upon  the  consider- 
ation, that  although  high  dividends  have  been  made, 
yet  none  but  the  original  subscriber  gets  the  benefit 
of  them,  for  all  subsequent  purchasers  are  compelled  to 
26^ 


306 


APPENDIX. 


pay  for  the  stock  a speculative  advance  upon  its  par 
value,  at  least  equivalent  to  the  extraordinary  interest. 

Fourthly.  No  director  except  the  president  should 
be  re-eligible  for  more  than  three  years,  in  any  period 
of  six,  and  none  should  be  entitled  to  loans  beyond  a 
limited  amount. 

Fifthly.  The  aflairs  of  the  bank  and  the  private 
accounts  of  the  directors  should  at  all  times  be  open 
to  the  inspection  of  the  legislature. 

Sixthly.  No  note  for  less  than  five  dollars  should 
be  issued,  inasmuch  as  no  solid  system  of  paper  credits 
can  any  where  exist,  unless  the  minor  channels  of  cir- 
culation are  exclusively  supplied  with  coin. 

Without  such  provisions  as  these,  the  propriety  of 
which  has  been  established  by  the  dear  bought  expe- 
rience of  the  past,  your  committee  conceive,  that  it  will 
be  impossible  to  guard  the  public  in  future,  against 
the  evils  of  excessive  issues,  which,  whenever  they 
are  made,  must  sooner  or  later  re-act  upon  the  commu- 
nity, with  effects  in  a greater  or  less  degree,  similar  to 
those  which  our  fellow  citizens  now  so  unhappily  ex- 
perience. 


I. 


PRICES  AT  LONDON  OP  AMERICAN  SECURITIES,  AT  THE 
DIFFERENT  DATES  MENTIONED. 


October  23d,  1838. 


New  York  Fives 

- 

- 

- 

91 

to 

95 

Pennsylvania 

- 

- 

- 

92 

96 

Louisiana 

- 

- 

- 

95 

a 

96i 

Alabama 

- 

- 

- 

83 

84 

Indiana 

- 

- 

- 

83^ 

84^ 

APPENDIX. 


307 


Ohio  (1856)  Sixes 

- 

looi  loij 

Mississippi 

u _ _ 

- 

93  94 

Virginia 

- - 

- 

95  « 96 

Illinois 

_ 

- 

834  844 

S.  Carolina,  Sterling  Fives 

- 

95  « 

Alabama 

- 

93  94 

April  30th,  1840. 

N.  York  Fives, 

1845  to  1860,  86 

to  87 

Penn’a 

1854  1865,  74 

76 

Louisiana 

1844  1852,  90 

a 

St’g  bonds. 

Alabama 

1863  1868,  68 

u 

Do. 

1859  80 

(( 

St’g  bonds. 

Indiana 

1864  65 

u a 

80 

U 

St’g  bonds. 

Ohio  Sixes, 

1850  to  I860,  90Ho  9U 

Illinois 

1870  75 

66 

Mas’s  Fives, 

1868  « 101 

66 

Maryland 

80 

66 

Mississippi  stocks,  no  quotation. 

From  the  New  York  American,  Extract  from  a letter  dated  London^ 
April  30th,  1840. 

We  are  in  some  respects  mending  in  the  Ameri- 
can Stock  Market.  United  States  Bank  shares  are 
done  at  15/.  15^.  to  day,  and  there  are  two  or  three 
buyers  at  15/.  10.9.  Pennsylvania  stock  is  very  heavy, 
and  holders  are  loud  in  their  expressions  of  dissatis- 
faction at  the  legislature  for  not  passing  the  bill  for 
taxes.  Several  parties  have  sold  in  alarm — and  there 
is  now  some  in  the  market  of  1856,  at  75.  This  is  a 
bad  state  of  things,  when  we  have  four  millions  of 
dollars  pledged  here  for  the  United  States  Bank,  and 
^400,000  for  the  Girard,  and  new  loans  making.  If 
there  had  been  any  care  evinced  by  that  state  for 
maintaining  its  credit,  no  doubt  we  should  have  had 
a considerable  and  rational  improvement.  The  state 
of  money,  and  the  opening  of  the  continental  market 
for  the  stock,  would  have  enabled  the  French  bank- 
ers to  add  Pennsylvania  to  their  administration  of 


308 


APPENDIX. 


American  stocks,  and  it  would  have  given  satisfaction 
to  all. 


J. 

NEW  YORK  GENERAL  BANKING  LAW. 

Extract  from  the  annual  Report  of  the  Comptroller  made  to  the  Legis- 
lature of  New  York  in  January^  1840. 


OPERATIONS  UNDER  THE  ACT  TO  AUTHORISE  THE 
BUSINESS  OP  BANKING. 

The  press  of  business  under  this  act  existing  at  the 
time  the  present  comptroller  came  into  office  and  which 
continued  to  increase  until  very  recently,  rendered  it 
indispensably  necessary  to  employ  additional  aid. 
There  are  now  engaged  five  registers  and  a book- 
keeper, and  yet  it  has  been  necessary  to  pay  a large 
amount  to  clerks  for  services  out  of  office  hours,  and 
to  other  individuals  for  numbering  circulating  notes. 
At  times,  with  all  the  force  which  could  with  propriety 
be  put  in  requisition,  the  demand  for  notes  could  not 
be  supplied  promptly.  That  demand  has  now  abated 
and  it  is  supposed  that  hereafter  a less  number  of  re- 
gisters may  be  able  to  answer  all  calls  for  bills  within 
a reasonable  time. 

With  a view  to  arrive  at  some  degree  of  certainty 
in  regard  to  the  title  and  value  of  the  real  estate  mort- 
ga^ed,  and  to  the  accuracy  of  the  conveyances,  all  the 
bonds  and  mortgages,  with  the  deductions  of  title  and 
appraisals  of  the  land,  which  had  been  received  in 
security  or  deposite,  previous  to  the  period  when  the 
present  comptroller  took  charge  of  the  office,  were 


APPENDIX. 


309 


submitted  to  a professional  gentleman  of  high  standing 
for  a thorough  and  critical  examination,  to  the  end 
that  all  defects  or  omissions  might  be  supplied.  Tlie 
result  of  that  examination  showed  its  necessity  and 
the  propriety  of  a similar  course  thereafter,  and  there- 
fore all  papers  relating  to  the  pledge  of  real  estate  have 
been  strictly  examined  and  approved,  before  any  cir- 
culating notes  were  delivered  upon  such  securities. 
All  the  defects  that  were  discovered  have  been  sup- 
plied, and  there  is  every  reason  for  believing  that  the 
titles  to  property  mortgaged  are  valid,  the  appraisals 
generally  fair  and  reasonable,  and  that  the  papers  are 
in  due  form. 

Some  months  since,  one  of  the  associations  which 
had  elected  to  deposite  state  stocks  and  securities  on 
real  estate  under  the  seventh  section  of  the  act,  and 
had  received  bills  stamped  on  their  face  ‘^secured 
by  pledge  of  public  stocks  and  real  estate, applied 
for  a further  amount  of  bills  to  be  stamped  “secured 
by  the  pledge  of  public  stocks,’’  tendering  at  the  time 
of  demand  other  stocks  as  a security  on  which  the 
bills  stamped  as  last  mentioned  were  to  be  issued.  The 
claim  being  contrary  to  the  decision  of  the  late  comp- 
troller, and  in  which  the  present  comptroller  acqui- 
esced, the  receipt  of  the  stocks  and  the  delivery  of  the 
bills  was  declined.  Whereupon  an  application  was 
made  by  the  association  to  the  Supreme  Court  for  pro- 
cess to  compel  a compliance  with  such  demand,  which 
after  argument  of  counsel  on  both  sides,  resulted  in 
the  award  of  an  alternative  mandamus.  The  comp- 
troller, under  these  circumstances,  came  to  the  conclu- 
sion to  yield  to  the  alternative  of  issuing  bills  on  stocks 
only  to  the  association  applying — a new  account 
was  opened  with  the  same  institution  with  a view  to 
keep  the  two  discriptions  of  bills  separate,  as  well  as 
the  securities  on  which  they  were  issued.  Several 
other  associations  have  been  furnished  circulating  notes 
in  like  manner  since  that  period. 

In  regard  to  receiving  the  stocks  of  other  states, there 


310 


APPENDIX. 


has  been  a wide  difference  of  opinion  between  persons 
engaged  in  banking  and  the  comptroller,  as  to  the 
amount  at  which  those  stocks  should  be  received  in 
pledge.  The  act  having  vested  a discretion  in  the 
comptroller,  in  the  receiving,  and  also  in  respect  to  the 
amount  at  which  they  might  be  received,  constituted 
that  officer  the  guardian  of  the  interest  of  the  bill  holder; 
and  in  maintaining  and  protecting  that  interest,  it  is  not 
surprising  that  there  should  have  arisen  a collision  of 
opinion  on  the  question  of  value.  It  was,  among  other 
things,  alleged  that  the  late  comptroller  had  decided 
to  admit  or  receive  the  six  per  cent  stocks  of  other  states 
at  par,  or  as  equal  to  the  five  per  cents  of  this  state,  and 
that  purchases  had  been  made  with  reference  to  that 
decision.  As  the  prices  of  stocks  had  materially  declin- 
ed in  market,  and  could  not  with  propriety  be  received 
at  that  rate,  to  remove  all  ground  of  complaintsarising 
from  misapprehensions,  the  comptroller  on  the  9th 
March  last,  gave  public  notice  as  follows:  Notice  to 

persons  forming  associations  under  the  general  bank- 
ing law — 

To  meet  the  inquiries  that  are  constantly  made  re- 
specting the  principles  which  govern  the  comptroller 
in  receiving  stocks  as  collateral  security  for  circulating 
notes,  he  thinks  proper  to  state — that  the  stocks  of  this 
state,  and  those  of  the  United  States,  at  or  about  five 
per  cent,  will  be  received  at  par  value,  and  notes  will 
be  delivered  to  an  equal  amount  on  such  stock  being 
deposited;  and  that  stocks  of  other  States  of  the  United 
States,  will  be  received  or  not  according  to  circum- 
stances existing  at  the  time  they  shall  be  offered,  and 
when  received  will  be  estimated  at  a rate  not  exceed- 
ing the  market  value,  and  notes  will  be  delivered 
accordingly.”  Since  which  six  percent,  stocks  of  other 
states  have  been  received  from  time  to  time,  at  95,  90, 
85,  SO,  and  70  per  cent,  and  five  per  cent  stocks  at 
nearly  corresponding  rates. — The  entire  amount  re- 
ceived is  $4,984,  700  38-100,  of  which  $478,200  38-100 
are  of  this  state  ®1, 099, 000  of  Arkansas,  $872,000  of 


APPENDIX. 


311 


Michigan,  ®1, 045, 000  of  Illinois,  ®1,043,000  of  Indi- 
ana, ®10,000  of  Ohio,  ®69,000  of  Missouri,  ®207,000 
of  Alabama,  ®1 10,000  of  Maine,  ® 50,000  of  Kentucky, 
and  ®1500  of  United  States. 

Fully  to  carry  into  effect  the  manifest  intention  of 
the  Legislature,  by  providing  an  ample  security  for 
all  circulating  bills  delivered  to  the  associations,  it  be- 
came a duty  to  fix  a price  at  all  times  approxima- 
ting to  the  actual  market  value  of  the  different  stocks 
offered  and  to  do  this,  and  at  the  same  time  to  give 
general  satisfaction  to  depositors,  imposed  a duty  of 
extreme  delicacy  and  much  perplexity.  There  seemed 
to  be  no  means  within  reach,  by  which  the  actual 
value  of  stocks  could  be  ascertained  with  any  tolerable 
degree  of  certainty.  Stocks  were  evidently  continu- 
ally on  the  decline,  and  the  comptroller  felt  it  to  be  his 
duty  to  keep  at  or  below  the  supposed  value  in  mar- 
ket, for  the  reason  that  the  disposal  of  the  stocks 
pledged  will  most  probably  be  called  for  at  a time  of 
the  greatest  pecuniary  difficulty,  and  the  sale  must 
be  promptly  made  at  whatever  sacrifice,  to  meet  im- 
mediate demands  that  admit  of  no  delay.  In  rating 
the  value  of  stocks,  this  consideration  has  been  steadi- 
ly kept  in  view,  to  the  end  that,  under  the  most  ad- 
verse circumstances,  there  should  be  an  adequate  re- 
demption fund;  a matter  of  vital  importance  to  the 
stability  of  the  system,  as  well  as  to  retain  the  confi- 
dence of  the  community,  which  has  been  so  strongly 
manifested  in  favor  of  the  circulation  of  these  banks. 

To  some  of  the  associations  a larger  amount  of  cir- 
culating notes  has  been  delivered  than  the  present 
estimated  value  of  the  stocks  pledged  will  warrant, 
and  in  such  cases  the  dividends  on  the  stock  will  be 
retained  to  increase  the  security,  agreeably  to  the  fifth 
section  of  the  act.  The  stocks  received  have  been  made 
payable  to  the  comptroller  in  trust  for  the  institution 
depositing,  or  have  been  assigned  in  \vriting,  or  an 
endorsement  made  upon  each  bond,  specifying  that  the 
same  has  been  deposited  in  pledge  for  circulating  notes 
by  the  association  making  the  deposite;  this  was  done 


312 


APPENDIX. 


to  prevent  any  unauthorised  transfer  of  the  securities. 
Although  this  is  not  in  accordance  with  the  custom 
among  dealers  in  such  securities,  which  authorises 
transfers  by  delivery,  yet  it  has  been  deemed  prudent 
to  adopt  every  practicable  measure  tending  to  the 
safety  of  the  deposite.  As  transferred  or  endorsed, 
these  securities  cannot  become  again  negotiable  with- 
out the  signature  and  seal  of  the  comptroller. 

Beside  this  guard,  and  a safe  place  of  deposite, 
the  farther  precaution  has  been  taken  to  provide  a 
suitable  book,  in  which  a general  description  of  each 
certificate  of  state  stock  or  bond  is  entered,  in  order 
that  if  any  of  the  securities  should  be  missing,  a de- 
scription and  notice  could  be  given  to  the  proper  officer 
of  the  state  which  issued  the  paper,  and  thereby  pre- 
vent its  payment  to  the  holder.  These  measures  are 
supposed  to  be  all  that  are  necessary  for  the  safe 
keeping  of  the  securities  deposited.  Less  precaution 
seemed  required  in  relation  to  the  bonds  and  mort- 
gages, as  that  class  of  securities  is  assigned  to  the 
comptroller,  and  the  mortgages  and  assignments  there- 
of have  been  duly  recorded  in  the  counties  where  the 
lands  conveyed  by  them  are  situated,  and  notice  of 
the  assignment  given  to  the  obligors,  and  an  acknow- 
ledgment of  the  amount  due  thereon  taken  of  the 
mortgagors,  where  the  mortgages  were  of  long  stand- 
ing. 

The  joint  committee  appointed  to  examine  the 
Treasurer’s  accounts  and  the  accounts  in  the  Canal 
Room,  has  been  invited  to  extend  its  examination  to 
the  Bank  Department.  The  invitation  was  accepted, 
and  a general  examination  has  been  had  in  relation  to 
the  situation  of  the  securities,  the  manner  of  keeping 
the  books  and  the  general  condition  of  that  depart- 
ment. 

The  past  year  has  not  furnished  a fair  criterion  by 
which  to  judge  of  the  operation  of  the  system.  About 
half  of  the  new  banks  have  been  in  business  but  a few 
months,  embracing  a period  of  unusual  derangement 
of  the  currency.  As  part  of  them,  at  least,  were  formed 


APPENDIX. 


313 


and  put  in  operation  without  due  preparation,  and 
have  been  managed  by  officers  of  limited  experience, 
it  could  scarcely  prove  otherwise  than  that  difficulty 
and  embarrassment  should  attend  their  operation.  It 
is  an  experiment;  and  a much  longer  period  of  time 
will  be  required  than  has  yet  been  given  fully  to  test 
the  practical  effects  of  the  system.  A restriction  which 
had  existed  for  many  years  was  suddenly  removed; 
the  right  of  banking  by  complying  with  certain  condi- 
tions was  opened  to  all;  the  occasion  has  been  seized 
with  avidity;  134  certificates  of  the  formation  of  asso- 
ciations have  been  filed,  seventy  of  which  have  com- 
menced business,  and  also  three  private  individual 
banks,  making  seventy-three  new  banks. 

Such  securities  as  are  mentioned  in  the  act  have 
been  sought,  obtained  and  deposited  to  the  amount 
of  @7,168,507,  and  upon  which  over  @6,000,000  in 
circulating  notes  have  been  issued  from  the  office 
within  the  last  fifteen  months.  A sort  of  banking 
mania  seemed  to  prevail  which  alarmed  the  commu- 
nity at  its  extent  and  possible  results.  The  comp- 
troller felt  that  nothing  short  of  the  most  rigid  per- 
formance of  the  duty  assigned  to  him  in  relation  to 
the  securities  pledged,  would  sustain  that  confidence 
upon  which  the  whole  circulation  of  the  free  banks 
depends.  One  bank  has  been  wound  up  without  loss 
to  the  holders  of  its  bills;  two  others  are  now  coming 
to  that  point,  and  it  is  confidently  believed  that  the 
result  will  be  the  same.  If  in  times  like  these  the  re- 
demption fund  proves  adequate  to  its  object,  addition- 
al confidence  will  be  accorded  to  this  class  of  circula- 
tion. During  the  influx  of  this  new  medium  in  the 
absence  of  organization  and  concert  among  the  new 
banks,  it  is  not  surprising  that  the  emission  should  be- 
come somewhat  depreciated,  more  especially  when  it 
is  considered  how  extremely  difficult  it  has  been  to 
preserve  thesafety  fundcirculation  of  thecountry  banks 
from  a like  depreciation,  notwithstanding  an  organi- 
zation of  years  standing,  and  the  great  experience  of 
27 


314 


APPENDIX. 


the  officers  of  these  institutions,  and  the  privilege  of 
availing  themselves  to  some  extent  of  the  aid  of  the 
State  by  receiving  its  deposites. 

The  heavy  expenses  incident  to  the  organization 
of  so  large  a number  of  institutions,  have  with  few 
exceptions,  been  paid  on  the  draft  of  the  comptroller, 
at. sight.  Such  part  of  their  circulation  as  has  been 
returned  for  redemption  has  been  promptly  met,  ex- 
cept by  those  associations  in  New  York  now  closing. 

The  amount  of  circulation  of  the  safety  fund  banks, 
as  appears  by  the  report  of  the  bank  commissioners, 
Jan.  1st,  1839,  was  - - - ^19,373,149  00 

The  amount  of  circulating  notes  of  free 

banks,  Jan.  1st,  1839,  was  - 396,300  00 


Making  the  whole  circulation  of  the 

state,  on  the  1st  of  Jan.  1839  - ^19,769,449  00 

The  total  amount  of  circulating  notes 
issued  up  to  the  1st  Dec.  1839. 

^6,012,019  00 
Estimated  amount  of 
safety  fund  notes  in 
circulation  on  1st  Dec. 

1839  - - 12,000,000  00 


Making  the  entire  circulation  on  1st  of 

Dec.  1839,  - - - - 18,012,019  00 

By  this  it  is  shown  that  the  circulation 

has  diminished  - - - ^1,757,440  00 

And  it  is  apparent  that  as  that  of  the  free  banks 
expanded,  that  of  the  safety  fund  institutions  con- 
tracted in  about  the  same  proportion.  The  aggre- 
gate of  circulation  of  the  state,  (allowing  all  the  notes 
delivered  to  the  new  banks  to  be  out,)  does  not  equal 
the  aggregate  of  1st  January,  1839,  by  the  sum  above 
stated. 

This  does  not  include  the  amount  of  post  notes 
issued  by  a very  limited  number  of  the  free  banks. — 
The  comptroller  has  not  deemed  that  a legitimate  is- 


APPENDIX. 


815 


sue,  and  has  therefore  dircoiiraged  the  practice,  and 
it  is  believed  that  it  has  not  obtained  to  any  consider- 
able extent. 

Such  issues  if  allowed  by  law,  will  operate  inju- 
riously upon  the  credit  of  the  new  system.  No  pledge 
is  made  for  the  redemption  of  that  species  of  paper  a 
fact  unknown  to  many,  and  therefore  its  circulation 
is  deceptive. 

Arrangements  were  made  in  the  month  of  Sep- 
tember last  with  the  deposite  bank  in  this  city,  to 
receive  the  bills  of  the  associations  from  the  treasurer 
in  deposite  at  par,  which  enabled  him  to  receive  those 
bills  for  all  sums  due  to  the  state.  This  arrangement 
put  the  bills  of  this  description  on  an  equal  footing 
with  the  safety  fund  bills,  so  far  as  regarded  the 
moneys  receivable  for  the  general  and  other  funds  of 
the  state,  (except  the  canal  fund,)  and  large  sums 
have  been  received  by  the  treasurer  in  that  kind  of 
paper.  As  to  receiving  the  bills  of  the  free  banks  for 
tolls  on  the  canal,  the  commissioners  of  the  canal 
fund  found  that  by  the  existing  law,  they  were  only 
authorised  to  deposite  the  moneys  belonging  to  that 
fund  with  ‘^safe  incorporated  moneyed  institutions 
of  this  state;’’  consequently  the  canal  board  are  com- 
pelled to  select  incorporated  banks  to  receive  tolls 
during  the  season  of  navigation.  Having  no  right 
to  direct  what  description  of  money  or  paper  the 
selected  banks  should  receive  for  lolls,  the  comptrol- 
ler, in  his  communication,  requested  them  to  receive 
all  kinds  of  bills  provided  they  could  do  so  without 
loss;  and  directions  were  given  to  the  collectors  to 
receive  all  kinds  of  bills  which  the  deposite  bank 
would  receive  of  them. 

Many  of  these  banks  have  received  of  the  collec- 
tors the  bills  of  the  associations  in  their  vicinity,  and 
some  of  those  that  were  more  remote.  New  banks 
were  springing  into  existence  as  if  by  magic,  and  a 
part  making  no  provision  for  the  redemption  of  their 
bills  in  New  York  or  Albany,  the  deposite  banks  felt 


316 


APPENDIX. 


unwilling  to  receive  notes  about  which  they  could 
know  little  or  nothing.  Had  the  commissioners  of 
the  canal  fund  been  able  to  give  time  to  convert  the 
new  currency,  an  arrangement  might  have  been  made 
to  receive  them.  But  the  constant  heavy  drafts  of 
the  canal  commissioners  in  favor  of  the  contractors, 
during  a period  of  unprecedented  pecuniary  distress, 
placed  it  beyond  their  power  to  extend  the  time  re- 
quisite to  make  such  conversion.  While  no  direc- 
tions, therefore,  could  be  given  to  receive  the  notes 
of  the  free  banks  for  tolls,  for  the  reasons  mentioned, 
many  of  the  deposite  banks  have  taken  freely  of  such 
as  have  taken  the  precaution  to  make  arrangements 
to  redeem  their  bills  at  New  York  or  Albany,  at  simi- 
lar rates  as  the  safety  fund  banks.  Had  all  adopted 
this  course,  there  would  have  been  little  if  any  diffi- 
culty in  the  reception  of  the  bills  of  all,  in  ordinary 
‘times.  It  is  confidently  hoped  that  hereafter,  when 
the  associations  shall  have  had  time  to  perfect  a sys- 
tem of  redemption  and  give  a fair  standing  to  their 
several  institutions,  no  such  difficulty  will  then  be 
experienced. 

It  is  one  of  the  first  and  most  sacred  obligations  of 
these  associations  and  all  other  institutions  enjoying 
the  privilege  of  supplying  a currency  for  the  country, 
to  render  that  currency  equal  to  gold  and  silver  at  its 
place  of  payment.  As  a debtor  cannot  well  be  re- 
quired to  pay  at  two  or  more  places,  because  that 
would  require  a double  provision  for  his  debts;  and 
as  the  place  of  payment  may  be,  and  often  is,  distant 
from  the  point  to  which  the  currency  is  carried  by 
the  course  of  trade,  there  will  naturally  and  necessa- 
rily be  a depreciation  in  such  currency  equal  to  the 
expense  of  transporting  gold  and  silver  to  such  point. 
This  is  reasonable,  but  any  farther  depreciation  is 
unjust  to  the  community  which  has  to  sustain  it. — 
The  great  question  then  arises  how  is  this  to  be  pre- 
vented in  regard  to  the  circulating  notes  issued  by 
the  banking  associations  under  the  general  law. 


APPENDIX. 


817 


A recent  arrangement  into  which  the  safety  fund 
banks,  and  many  of  the  associations  have  entered, 
has  proved  in  practice  so  successful  in  its  operation, 
that  nothing  more  seems  required  than  to  give  it  the 
sanction  of  law,  and  thereby  compel  its  universal 
adoption  by  all  the  associations,  to  render  their  notes 
a sound  and  safe  currency,  equal  to  gold  and  silver 
in  every  part  of  the  state,  abating  the  slight  deduction 
justified  by  the  distances  of  the  respective  associations 
from  the  place  where  their  notes  maybe  concentrated. 
The  following  might  be  substantially  the  provisions 
of  such  law.  The  banking  associations  should  each 
be  required  to  appoint.a  delegate  to  meet  at  some 
central  point  in  the  state  to  represent  them,  and  the 
majority  of  such  delegates  to  select  some  bank  or 
banking  association  in  the  city  of  Albany  as  an  ex- 
change agent,  and  agree  with  it  upon  the  terms  on 
which  it  would  perform  the  duties  of  the  agency. 
Should  the  associations  neglect  to  make  such  selec- 
tion and  agreement,  some  state  officer  or  officers 
should  be  authorised  to  do  it  for  them. 

The  agency  being  established,  every  association 
should  be  at  liberty  to  send  to  it  the  notes  of  all  the 
others  for  exchange  and  redemption.  On  a given 
day  in  each  week  the  exchange  agent  should  assort, 
count  and  arrange  in  separate  packages  all  the  notes 
received  at  the  agency,  adjust  the  balances  between 
the  different  associations,  seal  each  package,  and  give 
notices  by  mail  to  the  respective  associations,  of  the 
amount  due  from  each,  which  notices  should  require 
the  balances  to  be  paid  at  the  agency,  at  times  to  be 
adapted  to  the  distance  of  the  debtor  association 
from  it.  The  associations  at  and  east  of  Utica  might 
be  required  to  pay  in  ten  days  after  mailing  the  no- 
tice; those  at  and  east  of  Rochester  in  fifteen  days; 
those  at  and  east  of  Buffalo  in  eighteen  days;  those 
at  and  south  of  Whitehall  fifteen  days;  those  at  New 
York  eight  days;  those  at  Poughkeepsie  and  north 
of  it  five  days.  Their  times  of  payment  would  of 
21* 


318 


APPENDIX. 


course  be  regulated  according  to  distances  and  facility 
of  intercourse,  and  the  same  principle  may  be  applied 
to  all  the  counties  in  the  state. 

In  case  of  a default  to  pay  a balance  at  the  ap- 
pointed time,  the  exchange  agent  shall  furnish  proof  of 
the  fact  to  the  comptroller,  who  should  be  authorised 
immediately  to  dispose  of  so  much  of  the  securities 
deposited  with  him,  by  such  defaulting  association, 
as  shall  be  necessary  to  pay  such  balances,  and  there- 
upon redeem  its  notes  sealed  up,  take  them  into  his 
possession,  and  cancel  the  same.  But  if  the  comp- 
troller should  be  of  opinion  that  at  the  time,  and  un- 
der the  circumstances,  when  such  balances  accrued, 
the  securities  deposited  with  him  might  not  be  imme- 
diately available  to  redeem  the  whole  circulation  of 
any  defaulting  association,  he  might  be  authorised  to 
pay  a just  proportion  on  the  amount  of  notes  so  sealed 
up,  and  in  that  case  the  notes  sealed  up  should  be 
delivered  to  him  for  the  purpose  of  making  such  pro- 
portionate payment  to  owners  of  them.  The  comp- 
troller may  be  authorised  when  no  doubt  is  enter- 
tained of  the  sufficiency  of  such  securities,  to  advance 
from  the  treasury  the  sum  necessary  to  discharge 
such  balances,  to  be  refunded,  with  seven  per  cent, 
interest,  with  all  costs  and  charges,  out  of  the  sale  of 
the  securities  of  the  delinquent  association.  Upon 
the  occurrence  of  such  default,  if  the  balance  be  not 
paid  within  ten  days,  with  the  interest,  costs  and 
charges  the  attorney-general  should  be  required  to 
apply  to  the  chancellor,  or  a vice  chancellor,  for  an 
order,  which  such  officer  should  be  authorised  to 
grant,  to  restrain  the  officers  and  agents  of  such  asso- 
ciation from  transacting  any  business,  except  the  pay- 
ment of  its  notes  then  in  circulation,  and  to  receive 
payment  of  debts  due  to  it. 

• Upon  granting  such  order,  the  officer  to  direct 
some  master  in  chancery  or  some  other  proper  per- 
son, to  be  designated,  at  the  expense  of  the  associa- 
tion, to  examine  into  and  report  forthwith  the  condi- 


APPENDIX. 


319 


tion  of  the  same;  and  on  such  report  coming  in,  the 
court  to  be  authorised  to  dissolve  the  association  and 
appoint  a receiver  to  take  charge  of  the  effects  and 
pay  the  debts.  This  plan  will  abundantly  secure  the 
holders  of  the  circulating  notes,  and  enable  them  at 
all  times  promptly  to  convert  them  into  cash  at  a dis- 
count equal  to  the  time  allowed  for  payment  of  ba- 
lances, which  may  be  from  i of  one  percent,  to  1 per 
cent,  and  will  not  probably  exceed  the  latter  amount. 
It  at  the  same  time  affords  a reasonable  time  to  the 
associations  to  meet  their  balances,  and  save  them 
the  necessity  of  providing  funds  in  the  principal  cities 
to  meet  any  larger  amount.  The  clause  requiring 
them  to  keep  I2i  per  cent,  of  the  amount  of  their  cir- 
culation in  specie  at  the  place  of  their  business,  may 
be  so  modified  as  to  allow  of  a deposite  to  their  credit 
at  the  agency  for  redeeming  their  notes,  as  an  equi- 
valent. 

The  rates  at  which  compensation  may  be  made  to 
the  exchange  agency,  in  case  no  agreement  be  made 
by  the  associations,  should  be  limited  by  the  act. 

It  is  believed  that  such  a plan  would  render  the 
circulation  of  these  associations  all  that  their  most 
ardent  friends  have  anticipated;  no  good  reason  can 
be  perceived  why  the  proposed  system  of  redemption 
might  not  be  applied  also  to  the  safety  fund  banks, 
thereby  at  once  placing  the  whole  circulation  of  the 
state  on  the  same  footing. 

The  following  is  also  submitted  as  necessary  amend- 
ments to  the  act  authorizing  the  business  of  banking, 
viz: 

1.  No  circulating  notes  to  be  delivered  to  any  as- 
sociation or  individual,  until  satisfactory  proof  shall 
be  produced  to  the  comptroller,  showing  that  the  ca- 
pital paid  in  or  secured  to  be  paid  in,  amounts  to 
^100,000. 

2.  No  stocks,  other  than  such  as  have  been,  or 
shall  be  issued  by  the  authority  of,  and  for  the  re- 
demption of  which  the  faith  of  the  United  States  or 


320 


APPENDIX. 


of  this  state  is  or  shall  be  pledged,  shall  be  received 
in  security  for  circulating  notes,  except  where  satis- 
factory evidence  shall  be  adduced  that  such  stocks 
cannot  be  procured  without  the  payment  of  an  exor- 
bitant price. 

3.  Individual  bankers,  who  shall  commence  busi- 
ness after  1st  January,  1840,  shall  comply  with  the 
same  regulations  which  are  applicable  to  associations. 
Such  bankers  who  had  commenced  business  before 
that  day  shall  hereafter  make  semi-annual  reports  in 
like  manner  as  associations,  and  comply  with  all  re- 
gulations prescribed  by  law  for  associations. 

4.  Bonds  and  mortgages  made  direct  to  the  comp- 
troller by  the  president  or  other  officers  of  the  asso- 
ciations, or  individual  bankers,  shall  be  valid,  and 
such  bonds  and  mortgages  in  such  cases  may  hereaf- 
ter be  received  in  like  manner  as  if  transferred  ac- 
cording to  the  7th  section  of  the  act  aforesaid. 

5.  No  association  or  individual  banker  shall  make, 
issue,  or  put  in  circulation  as  money,  any  notes,  bills 
or  other  evidences  of  debt,  except  such  as  shall  be 
obtained  from  the  comptroller  according  to  law. 

6.  Mutilated  circulating  notes  may  be  returned 
and  others  issued  in  lieu  of  them,  if  the  securities  shall 
be  sufficient  to  warrant  it. 

7.  All  protest  fees  shall  be  paid  by  the  person  pro- 
curing the  services  to  be  performed,  and  for  which 
fees  the  association  or  individual  banker  shall  be 
liable.  No  part  of  the  pledged  fund  shall  be  applied 
in  payment  of  such  fees.  There  shall  be  but  a single 
fee  for  protest  allowed  on  all  bills  held  by  the  same 
person,  or  persons,  jointly  interested  at  the  time  of 
protest. 

8.  When  the  dividend  on  stocks,  or  interest  on 
mortgages  shall  be  retained  by  the  comptroller,  he 
shall  receive  the  same  and  deposite  it  in  some  safe 
bank  or  association  in  trust  for  the  institution  or 
banker  to  whom  it  belongs,  at  the  highest  rate  of  in- 
terest which  can  be  obtained,  to  remain  in  deposite 
till  the  securities  will  authorise  it  to  be  paid  over. 


APPENDIX. 


321 


9.  The  committee  annually  appointed  to  examine 
the  treasurer’s  accounts,  shall  also  examine  all  the 
securities,  account  books  and  other  papers  which  may 
be  necessary,  in  their  opinion;  to  enable  them  to  re- 
port the  true  state  and  condition  of  that  department 
to  the  legislature. 

NOTE  BY  THE  AUTHOR. 

During  the  late  session  of  the  New  York  Legisla- 
ture, two  laws  were  passed  relating  to  the  Free 
Banks,  copies  of  which  could  not  be  procured  in  time, 
but,  the  principal  features  of  which  are  as  follows: 

From  the  New  York  Journal  of  Commerce  of  2bth  April, 

Redemption  of  Country  Bank  Notes, — The  bill 
passed  by  the  assembly  on  Tuesday  in  relation  to 
this  subject,  provides  that  every  bank,  banking  asso- 
ciation and  individual  banker,  except  those  in  the 
cities  of  New  York,  Albany  and  Brooklyn,  shall  ap- 
point an  agent  in  the  city  of  New  York  for  the  re- 
demption of  their  notes,  at  a rate  of  discount  not 
exceeding  one  half  of  one  per  cent. ; that  the  bank, 
banking  association  or  individual  banker,  whose 
agent  shall  neglect  or  refuse  to  redeem  such  notes  on 
demand  shall  pay  interest  on  the  same  at  the  rate  of 
20  per  cent,  per  annum;  and  if  such  redemption  and 
payment  of  interest  is  not  made  within  20  days  after 
demand,  such  bank,  banking  association  or  individual 
banker,  shall  be  liable  to  be  proceeded  against  by  the 
bank  commissioners;  that  every  association  and  indi- 
vidual banker  who  shall  hereafter  commence  busi- 
ness, shall  appoint  an  agent  before  receiving  any 
circulating  notes  from  the  comptroller.  That  any 
number  of  banks,  banking  associations  and  private 
bankers,  may,  by  agreement  associate  to  raise  a joint 
fund  to  be  placed  in  the  hands  of  the  common  agent 
for  the  redemption  of  their  notes  in  the  city  of  New 
York;  and  also  the  circulating  notes  of  other  banks, 


322 


APPENDIX. 


banking  associations  and  individual  bankers;  and 
that  no  bank,  banking  association  or  individual 
banker,  shall  purchase,  buy  in  or  take  up,  their  cir- 
culating notes  at  an  amount  less  than  what  purports 
to  be  due  thereon,  at  any  other  place  or  in  any  other 
manner  than  is  directed  by  the  present  bill. 


From  the  New  York  Commercial  advertiser  of  May  20^^. 

jict  to  amend  the  act  authorising  the  business  of 
banking, — The  second  section  of  the  act  is  amended 
so  as  to  authorise  the  issue  of  notes  by  the  comptroller 
to  an  amount  equal  to  that  of  stocks  of  this  state  de- 
posited with  him  by  any  person  or  association — such 
stocks  to  be  equal  to  a five  per  cent  stock  of  this  state, 
and  not  to  be  taken  at  a rate  above  their  par  value, 
or  above  their  current  market  value. 

Stocks  now  held  by  the  comptroller  may  hereafter 
be  transferred  to  and  received  by  him  at  their  market 
value. 

No  association  shall  commence  business  until  stocks 
to  the  amount  of  §100,000  have  been  deposited; 

No  person  or  association  shall  put  in  circulation 
any  note  not  payable  on  demand.  Violation  of  this 
provision  punishable  with  fine  and  imprisonment,  as 
a misdemeanor. 

Comptroller  shall  receive  mutilated  notes,  and  issue 
others  in  place  of  them. 

Thirty-third  section  of  the  act  repealed. 

When  the  securities  deposited  with  the  comptroller 
are  in  his  judgment  insufficient,  he  may  receive  the 
dividends  on  stocks  and  interest  on  bonds  and  mort- 
gages, and  deposite  the  same  in  some  bank  of  Albany 
in  trust,  at  such  rate  of  interest  as  he  may  deem  most 
advantageous;  to  be  withdrawn  and  paid  over  when 
the  sufficiency  of  the  security  shall  render  it  proper. 

The  joint  committee  appointed  to  examine  accounts 
of  the  treasurer  shall  also  examine  securities  deposited 
with  the  comptroller,  and  books  and  papers. 


APPENDIX. 


323 


President  of  any  banking  association  may  execute 
bonds  and  mortgages  to  the  comptroller,  as  security  for 
circulating  bills. 

Fees  for  protest  of  circulating  notes  to  be  paid  by 
the  person  at  whose  instance  the  protest  is  made — as- 
sociation to  be  liable  therefor — but  not  the  securities 
deposited. 

Bankers  and  associations  made  liable  to  inspection 
and  supervision  of  the  bank  commissioners. 

Refusal  to  submit  books  and  papers  for  examination 
or  to  be  examined  under  oath,  or  any  violation  of  law, 
subjects  parties  to  the  same  proceedings  as  in  the  case 
of  incorporated  banks. 

An  additional  bank  commissioner  appointed,  to  be 
paid  out  of  interest  of  securities  deposited. 

Bodies  corporate  may  receive  and  hold  transferable 
shares  in  stocks*  of  banking  associations,  the  same  as 
in  other  stocks. 


THE  END. 


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